What Is Title Insurance and Important Questions to Ask about It

Most prospective home buyers believe that purchasing tax certificates and hiring a title company to investigate the property they are interested in is enough. However, the only real protection you have if something goes wrong after the transaction is the home title insurance. 

In this article, we will define what is title insurance, who needs to purchase it, and what type of protection it offers. It is important to understand the benefits of title insurance and weigh them against the cost of purchasing it (which varies between $500 and $3,500 depending on the state you live in and the value of the property for sale).

Types of Home Title Insurance

There are two types of title insurance:

• Lender’s title insurance, which is mandatory
• Owners’ title insurance, which is optional

Almost all banks will require you to purchase a lender’s title insurance before they approve your mortgage loan. So, why is title insurance important and who does it protect? In this case, the lender is protected up to the amount of the mortgage loan if there are problems with the title of the property. Thus, the loan will be repaid to the bank by the title insurance company, since foreclosing is not a legal option.

The owner’s title insurance is as important as the lender’s, even if it is not mandatory. It is the type of home title insurance that protects you, the buyer, against many issues connected to the title of the house, from unpaid back taxes to fraud (more on this topic later in this article).

Benefits of Title Insurance

You may still wonder: do I need title insurance as a homeowner, apart from the lender’s title insurance, which I must purchase? The answer is a definite yes. The fact is that even with careful due diligence in investigating the title of the estate or house you want to buy, you may discover problems after you make the purchase, such as:

• There are unpaid property taxes
• The will is being disputed by a third party
• The property boundaries are disputed by a neighbor
• There are encumbrances and easements on the property, reducing its value
• The seller committed outright fraud and forged the documents

The purpose of home title insurance policy is to protect you against severe financial loss when any of such issues occur.

Important Questions about Title insurance that You Need to Ask

The most important question any potential homeowner has is: who pays for title insurance? In the case of the lender’s title insurance, the borrower has to purchase it in favor of the lender (the mortgage bank). The owner’s title insurance is sometimes purchased by the seller and its cost will be added to the property price. However, if the seller does not offer it, you, as a potential buyer, must protect your interests and purchase it.

Here are other important questions to ask about the home title insurance:

1. What Does Title Insurance Cover?

The owner’s title insurance will protect you against the following risks:

• Ownership claims from other parties
• Claims by ex-spouses
• Errors in public records
• False signatures on title deeds and other documents
• Outstanding liens
• Encumbrances
• Easements
• Property survey errors

2. How Can I Save Money on Title Insurance?

The best way to protect your own title interests and save money is to persuade the seller or their real estate agent to bundle the home title insurance in the total sale price. However, since it is so important, the owner’s title insurance is a small investment for your peace of mind and financial safety.

3. Is My Investment Protected?

In this case, it is very important to know clearly: what does title insurance cover? The answer is – everything pertaining to the title to the estate or condominium up to the moment of purchase. This means that your investment is protected up to the limit that you do not create liens, encumbrances, and easements on it.

4. When to Buy Title Insurance?

You should consider buying the owner’s title insurance before you close the deal on your future home. The lender’s title insurance is a prerequisite before the bank approves your mortgage loan.

5. Is My Title Third-Party?

The homeowner’s title insurance will protect you against the claims of a third party made on the property.

6. Are You Locally Owned?

A locally owned company will have a better understanding of the real estate market and the properties in their community when they issue a home title insurance. Plus, you will always have a contact person you can reach easily if you need further explanations.

What Does Title Insurance Not Cover?

Title insurance does not cover:

• Any defects created after the policy has been issued or defects created by the new homeowner
• Hidden defects
• Environmental hazards
• Unrecorded liens and encroachments, and more

Title insurance is not the same as home insurance, meaning it doesn’t cover damages caused by a flood, fire, theft, and other problems due to nontitle-related issues.

Protect Your Future with a Home Title Insurance Policy

CertSimple is a family-owned company specializing in creating tax certificates and helping prospective buyers find tax certificates and home title insurance policies. We are committed to ensuring that you make such an important investment with the certainty that it has no hidden pitfalls.

We have offices in Dallas, TX, Austin, TX, and Houston, TX, but our service area also covers San Antonio, Forth Worth, and nearby areas, including all 254 Texas counties. 

Call us now: 800-806-3639!