Obtaining the title of a property is one of the most crucial steps in buying real estate. Having the title confirms that you’ve received ownership rights for the property from the seller. However, homebuyers need to ensure there are no issues with the title or the property before going through with the sale. Today, we’re talking about title insurance, how it works, and how it protects homebuyers from potential damages.
Contents of This Article:
- What Is Title Insurance On a House?
- What Does It Cover?
- Different Types of Title Insurance
- Do You Need It to Buy a Property?
- Risks of Not Buying Title Insurance
- How Much Does It Cost, and Who Pays?
- Protect Your Property With BMG
What Is Title Insurance On a House?
Whether you’re a landlord or property manager in Northern Virginia, the last thing you want to worry about is issues with a property’s title. Title insurance helps reduce the likelihood of potential problems.
Title insurance is a policy that protects homeowners and lenders from damages or financial losses caused by defects in a property’s title. Some of the most common claims filed against a title are back taxes, liens, or conflicting wills. That said, while traditional policies generally protect against future events, it protects against claims for past occurrences.
There are several instances where title insurance is helpful for lenders and borrowers. After all, if you’re putting a lot of money down on a property, the last thing you want is to find out that the title is invalid. Luckily, insurance helps protect you from that.
What Does It Cover?
Even after a property sells, there’s still a chance that someone will challenge the property title. While your coverage generally depends on your title company, some issues typically covered include the following.
Disputes regarding ownership- Incorrect signatures on documents
- Forgery or fraud
- Falsified or inaccurate records
- Restricted covenants, like unrecorded easements
- Outstanding lawsuits or liens
- Back taxes
- Encroachments
Essentially, it covers past title issues that come up after you buy a home and are unknown at the time of purchase.
Different Types of Title Insurance
There are two types of policies: owner’s insurance and lender’s insurance. Here are a few differences between the two.
Lender’s Insurance Policy
The most common type of title insurance is a lender’s policy. The borrower generally purchases this type of insurance as part of the closing costs to protect the lender. It’s important to note that this policy only protects the lender against loss, not the borrower. For instance, it covers the lender against financial loss from title defects that weren’t discovered during the title search that could impact the lender’s ability to recover the loan amount if the borrower defaults.
Owner’s Insurance Policy
On the other hand, owner’s title insurance protects the homeowner’s equity in the property. It ensures the homeowner has clear ownership and protects them against potential legal issues. For instance, it covers financial loss from title defects like forged documents, errors in public records, or other issues that could affect the title. The buyer also purchases this policy during the closing process, and it solely protects the homeowner.
Do You Need It to Buy a Property?
Title insurance generally isn’t legally required to buy a property, but it’s highly recommended. Additionally, lenders almost always require borrowers to purchase a lender’s policy as part of the loan conditions. After all, it protects their financial interest in the property and mitigates the risk of losses from title defects.
On the other hand, while owner’s title insurance is optional, you should still consider it. After all, it protects you, the homeowner, from potential title issues, and it covers legal fees and potential losses if someone challenges your title in the future.
Ultimately, while you don’t necessarily need title insurance (unless your lender requires it), purchasing it’s still a good idea to reduce risks.
Risks of Not Buying Title Insurance
Without title insurance, you could face huge financial implications. For instance, imagine you find the perfect property and purchase it, only to find out that there are unpaid property taxes from the previous owner. Well, without title insurance, you’d be responsible for paying these back taxes or risk losing the home to the taxing entity.
Additionally, if there’s a misunderstanding over ownership, like an heir emerging after the property sells, they may have a legal claim to the property. Luckily, title insurance protects you against any unexpected claims. However, without it, you may have to defend yourself in court or even give up the property.
These are just a few examples of why an insurance policy is crucial–other scenarios, like falsified documents or fraud, further solidify the need for a policy.
How Much Does It Cost, and Who Pays?
The price of title insurance can range from around $500 to $3,500. However, the cost of insurance varies by the type of policy you choose. Generally, you must purchase a lender’s insurance policy, which may cost around 0.1% to 2% of the home’s purchase price. On the other hand, owner’s title insurance is a separate cost, usually around a few hundred dollars. Usually, the two policies are required together to ensure everyone is protected.
Protect Your Property With BMG
The first step in protecting yourself and your new property is having title insurance. After all, the last thing you want to deal with as a new property owner is financial losses due to liens or defects in a property’s title. Now, if you’re buying the property to turn it into a rental home, there are several considerations for further protecting yourself and your property.
Hiring a professional rental management company, like Bay Property Management Group, can help protect your rental. We choose qualified tenants, keep up with necessary maintenance, and keep a consistent line of communication with you and your tenants so everyone stays informed.
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If you’re looking for rental management in Baltimore, Philadelphia, Northern Virginia, or Washington, DC, contact BMG today!
