How Does Title Insurance Work?

Deed of a House Think about this: What if one morning you wake up and find out that another person also has an official deed to that home you recently bought? Aside from losing your home, you also lost your down payment — all that before you even had a chance to brush your teeth and eat your breakfast. Although this scenario might sound incredulous and impossible, it’s not. To prevent yourself from experiencing this kind of scenario, consider buying title insurance.

What Exactly is Title Insurance?

Title insurance could safeguard you from any loss you incur by liens, defects, or other issues with the title or deed to the home you’re buying. Your mortgage lender would also be insured, so if any issue with the title surfaces, your home loan would be paid off.

How Do You Pay for It?

Title insurance is paid in full during closing, says Altius Mortgage Group and other mortgage loan originators from Utah. The cost differs from one state to another, depending on fees and services that are covered by the premium. This might only include the insurance or the costs for the title search and closing costs. In addition, you must buy title insurance again every time you finance your home loan.

The title insurance cost itself is around 0.5% of your home’s purchase price. For example, if you buy a house for $250,000, you would have to pay $1,250 for your title insurance. When you compare this cost to your home’s purchase price, what’s another $1,250 for your protection right?

While it’s tempting to see title insurance as an extra cost you need to pay, it’s clearly much more than that. Like how your homeowner’s insurance offers financial protection from physical threats, title insurance safeguards your interest from past acts of fraud, omissions, or errors. It could protect you in case the house you bought has a pre-existing lien or claim on it.