What Is Title Insurance?

Updated: Feb 23, 2022

If you’re asking questions such as what is title insurance and why do I need it, we’re here to provide the answers.

What Is Title Insurance?

Title insurance is a policy covering the possibility of any third-party claims on a real estate property, claims that didn’t show up in a title search, but appear after closing on a property.

A title search involves the thorough research of public records about the property, to determine if there are any liens, encumbrances, or easements involving the real estate.

The title company gathers and studies sources such as deeds, county land records, bankruptcy records, divorce records, tax records, and any other kinds of financial judgments that could be attached to a real estate property. The title company works hard to make sure there are no hidden claims or liens by parties including those that neither the seller or buyer may know about.

The title search process goes back as far as possible, often before a home was built. Being this thorough is important, as title insurance protects both the property owners and lenders against any unforeseen property claims. If any issues turn up, a title insurance company, such as the skilled team at PR Title, will work diligently to resolve them.

Two Types of Title Insurance

There are two kinds of title insurance: the lender’s title insurance, which is also called a loan policy, and the owner’s title insurance.

A lender’s title insurance policy is required, whether you’re buying a new property or refinancing. It protects the financial interests of the issuing mortgage company, making sure that the lender receives the top claim on the property before any other liens should they appear. At a minimum, the coverage must be as much as the mortgage principal.

An owner’s title insurance policy is optional. It protects the buyer, and the amount of coverage is most often the purchase price of the property.

Costs of Title Insurance

Title insurance fees are not a continuing expense. They’re only paid once, up-front. The lender’s policy is based on the loan amount; the owner’s policy is based on the purchase price of the real estate property.

Both policies combined cost approximately 0.5% to 1.0% of the home’s purchase price. As an example, on a $300,000 home, the cost would be between $1500 and $3000.

While the buyer always pays the lender’s title insurance cost, either buyer or seller, or in some cases both together, may pay for the owner’s title insurance.