What is Title Insurance and why do I need to purchase it?

Mortgage Companies require a Lenders Policy of Title Insurance when taking out a mortgage on a property. In addition, an Owners Policy is produced when purchasing a home. Title companies provide insurance on a title to a particular property to ensure it’s not burdened or encumbered, or simply so no one other than the new homeowner has any legal rights to the property. This includes any liens, creditor or court claims, wills of previous owners, and any incorrect legal documents on the property. “Title insurance gives the new homeowner piece of mind in case of discrepancies,”. In essence, a title company researches the history of the property through public record and legal documents.

The Lenders Policy enables the mortgage lien holder (your lender) legal rights to the property in case of default. The Owners Policy is a safeguard against previous judgments, liens and errors for forgeries in the title. A clear title is insured against any claims made against the property from any issues prior to your ownership. This insurance holds true even if the claims do not arise until after you have purchased the property. Title insurance does not cover the property for loss or damage in the manner of homeowners insurance.

The cost of title insurance when purchasing a home varies. Each title company has their own schedule of fees, which are generally on a sliding scale based on the value of the property; title insurance is less for a $120,000 home than a $300,000 home. In addition, title insurance when refinancing is considerably less than when purchasing a home.

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