Facts About Title Insurance
by Patricia Leary ◊ Jul 06, 2012
Every loan with which I work requires “title insurance,” and almost every client needs an explanation as to why it is needed.
What is title insurance? Just as homeowners insurance is a policy of insurance that protects an individual against physical damage to his/her home, title insurance is a policy of insurance that protects the individual against legal damage to the title to his/her home. It’s an indemnity policy that protects the insured’s rights in a property against claims that limit or threaten those rights.
Who can get title insurance? A policy of title insurance is available for lenders and homeowners. There are two types of policies: the loan policies and the owner’s policies. In a purchase transaction with financing, the lender makes it mandatory and will require that the borrower pay for it.
Why do I need title insurance? With regards to the lender’s title insurance policy, you need it because the lender requires it for most loans. Owner’s title insurance is optional in the State of Connecticut, but the Connecticut law requires that an attorney representing the buyer in a purchase advise the purchaser of its availability. Given the fact that our home is our single largest investment we will make in our lifetimes and is our primary asset, owner’s title insurance is a smart choice. Without it, the homeowner is at risk of losing his/her entire investment.
I paid for a “title search,” why do I need title insurance? The title search is performed by someone who examines land records. Human beings make mistakes and land records are full of them. More importantly, a policy of title insurance can protect against many other things outside of the land records.
What exactly how does title insurance protect me? This depends on what type of policy you purchase. If you buy the standard ALTA policy, you are insured that: you are the owner of the property, you will be indemnified against any liens that were missed in the title search, and that the title to your property is marketable, meaning that there is no defect that would prevent a buyer from taking title.
How much does it cost? The cost of title insurance varies depending upon the amount of coverage. It is approximately $3.25 per $1,000 of coverage. This is a one-time payment and the policy is good for as long as the insured owns the property. There are no other payments due. Since the lender is requiring it, the cost of the owner’s policy is minimal. The amount the lender requires is based on the amount that you are borrowing. If your loan amount is $400,000, then your title insurance policy will be in the amount of $400,000, which will cost $1,225. The owner’s policy would cover the full purchase price, in this case $500,000 would cost $590 more or a combined price of $1,815 for both policies.
In Connecticut, title insurance is purchased through your attorney. This is one reason why, when you are purchasing a home, you need an attorney who does real estate law and who is familiar with title insurance. Either your real estate agent or mortgage banker can refer one to you if you don’t know of one for your closing.
Call me, your local Mortgage Banker, to set up an appointment today at 203.645.1037.