Debunk Myths about Title Companies
If you own a home or are planning on buying a home soon, you have probably heard about title insurance. But not everyone knows exactly what a title company is or how title insurance works. Here are nine of the most common misconceptions about title companies.
Title Insurance Is Required
There is no law that requires homeowners to have title insurance. It’s not like driving a car where you need to have the insurance. However, having title insurance can save you a lot of potential hassle. People don’t usually try to sell houses they don’t own, but occasionally renters will try to pass themselves off as homeowners. While you want to protect yourself from these scams, title insurance is especially useful for protecting against accidental errors. Mistakes with titles are quite common. About a quarter of titles end up having issues of some sort, so taking steps to protect yourself is smart.
The Protection That Title Insurance Offers Is Insignificant
Most title companies offer a variety of different coverages. While you can get insurance that only offers you a minimal amount of protection, you can also buy a policy with more protection. Title insurance can protect you against forgeries, unknown heirs and liens, survey disputes, mistakes with the deed, and more.
Lender’s Title Insurance Is the Same Thing As Owner’s Insurance
These are two different kinds of insurance but it is easy to get them mixed up. Lender’s title insurance protects mortgage companies, while owner’s title insurance protects homeowners. Lender’s insurance won’t protect your equity in the house, it protects your lender in case something goes wrong with the title. However, if you get a mortgage loan, you may be required to have lender’s insurance. If someone sues you with a claim to your house, only owner’s title insurance will help you with this.
You Don’t Need Title Insurance If You Buy a New Home
When disputes happen over ownership of a house it’s often because the house has had many owners over the years. The person who sold you your house might not know the full history of the house and its previous owners. This often leads people to believe that title insurance is only important if you buy an old house. However, title insurance is useful even if the house is brand new. The land itself is still old. In many cases, new homes are built over old houses that have been torn down. Even with brand new homes, ownership disputes still happen.
You Don’t Need It If You Buy a Vacant Lot
Similarly, a lot of people don’t think about title insurance when they’re buying a vacant lot. For one, buying a lot costs less than buying a house. But it is still a significant investment, especially if you plan to build on it. Lots can have all the same issues that a house can have, from boundary disputes to unpaid property taxes.
Title Insurance Costs More than Its Worth
When people hear the word insurance they think expensive. Health insurance, home insurance, and car insurance can all be quite expensive. Title insurance only costs a small fraction of what the closing costs are going to be, so it is a lot more affordable than most people think. On average, title insurance costs 4% of what the final closing costs are. Title claims will cost you a lot more than the insurance would. Title insurance is also unique in that it is one-time expense and not a monthly fee.
Homeowner Can’t Choose Which Company They Want
Homeowners often end up using the same title company that their real estate agent uses or their lender uses. But you can choose any title company you want. You can shop around and see which companies offer the best coverage and which companies are the most affordable. Your lender or agent might try to push their title company onto you, but you can always tell them you’d rather use a different company. You’re usually better off doing your own research.
You Need a New Policy When You Refinance
If you refinance your property, it isn’t going to make your title insurance policy null and void. Your policy will still be in effect. However, in many cases, your lender will want a new insurance policy if you decide to refinance the property. So it is a good idea to talk to lender about it.
Title Insurance Is All about Commissions
While some of the premium goes toward commission, most of the premium is used to perform research on the title. They examine the title an check for fraud and other issues so that problems won’t arise in the future. It’s better to know about an issue right away than to have it come as a surprise down the line.
When it comes to title companies, there is a lot of myths going around. Especially, if you are a new homeowner. Before now, you have probably never had think about title insurance once in your life. The important thing to know is that it is not required, but it is certainly a good idea to have it. The cost of the insurance is much smaller than the value of the house or the equity you will put in it. So by not having it, you stand to lose a lot more than what you would save by skipping out on the insurance fee.