What is title insurance and how does it work?

Sellers and buyers often ask real estate professionals or mortgage lenders about title insurance and why they always need it. So, what is title insurance and how does it work? Learning the cost of title insurance and whether it is worth having makes sense when closing your real estate transaction.

What is Title Insurance?

Title insurance is a type of policy that protects a lender’s interest and a homebuyer’s interest in the property against title claims.

People often ask who title insurance protects, a title insurer protects lenders and homeowners. When there are defects in property titles, title insurance can protect lenders and buyers from financial loss. There are two types of title insurance: a lenders and an owner’s policy. As you might expect, a lender’s policy protects the lender, and an owner’s policy protects the new owner.

But before title insurance can be issued, title companies must do an extensive search, known as the title search, to ensure no encumbrances or claims are against the property, such as code enforcements, or mortgages.

Lender’s Title Insurance

A lender’s title insurance policy protects the interests of mortgage lenders during a buyer’s ownership. Homebuyers are required to pay for a lender’s title insurance policy. This type of policy is required by lenders on all types of mortgage loans.

Lenders need to be able to protect their interest in a property up to the value of the loan, and insure that it has a first position lien on your property.

The cost is a one-time premium that is part of a buyer’s closing costs.

Owner’s Title Insurance

An owner’s title insurance policy covers a homeowner, the new buyer, against claims for title issues such as ownership rights, incorrect records, and fraudulent documents.

The owner’s policy can be paid by either the seller or buyer, depending on the contract terms and negotiations.  People often struggle with the decision to get owners title insurance because of the expense involved. The premium paid is based on the sales price of the property, and depending what state you live in, the price may vary greatly. Remember that it is a one time premium, and it covers the new owner from the time the property is purchased until the property is sold or conveyed. This included the heirs to the property as well.

We like to say that if a lender requires a lender policy, then you should want an owner’s policy.

Contact us for your Fort Myers real estate title insurance quote and let us get you from contract to closing table.

Title Junction is a full service real estate title company serving the area of Fort Myers, Cape Coral and the entire state of Florida since 2005. The company handles a number of real estate title services for both commercial and residential properties. 

Have questions? Give us a call at 239.415.6574.

In case you missed it, check out our last Title Junction post: Buying a Home? 5 Tips for Negotiating Your Fort Myers Real Estate Transaction 

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