The purchase of a new home requires learning all about various aspects of homeownership (financial, legal, and practical) that can be overwhelming to a first-time homebuyer and homeowner. As part of our ongoing homebuyer tips articles, LGI Homes seeks to provide an easy-to-read and easy-to-understand resource that goes in-depth on a variety of subjects connected to buying a home. Today, we explore the world of title insurance, and how it will play into your experience of buying a home.
What is title insurance?
Title insurance is a policy that protects against losses that could arise from problems connected to the title to your property. Before you became the owner of your home, it may have gone through a handful of ownership changes. Even if you are buying a newly constructed home, the land on which it sits may have gone through changes of ownership over the years. There may be a weak link at any point in the chain of ownership that could emerge to cause trouble. For example, there may be unpaid real estate taxes or other liens on the property. Title insurance covers any claims and legal fees that arise out of such problems.
Is title insurance required?
If you are financing your new home with a mortgage, you will be required to obtain a title insurance policy equivalent to the amount you borrow on the loan. The policy is then required to be held until the loan has been repaid in full.
How long is the property protected with title insurance?
Title insurance lasts for the duration of ownership. This includes the buyer who took out the policy and any heirs. If the home is ever sold, the current policy ends and the new owner will be required to obtain a new policy.
Is there anything title insurance doesn’t cover?
It is important to note that title insurance does not cover equity, a separate owner’s title policy is required for that. Title insurance also does not cover claims that arise after you purchase your home, such as problems related to identity theft, neighborhood land disputes or issues with contractors. Unlike other insurance policies that cover the future, title insurance covers the past. Essentially, the policy “ends” the day you obtain the policy and extends backwards in time indefinitely.
Is title insurance affordable?
The rates for title insurance vary greatly across the country, but typically speaking, these policies are affordable because they deal in preventing loss rather than paying claims. Many states regulate the cost of title insurance to keep rates affordable.
Can I purchase title insurance on my own?
Owners have the right to purchase their own title insurance, but many choose not to invoke it. Many owners leave this task to their lender or attorney.
Does title insurance rise with the value of my home?
No. Additional policies are needed to cover any rises in value of property.
Do I ever need to take out a new policy?
Possibly. In the event you choose to refinance your home, a new title insurance policy will need to be secured.