If you’re planning to buy a home, the topic of title insurance will likely surface in one of the discussions you’ll have with your Texas Realtor or seller. A clear title means you’ll be able to occupy and use the property the way you want, and that you’re able to sell or pledge your property as security for a loan.
Like most types of insurance, title insurance is better to have and not need than need and not have. But what is it, why do you need it, and how does it work?
What is title insurance?
Title insurance is a safeguard against loss arising from hazards and defects already existing in the title that are missed when a title company researches a sale. It protects you and your lender.
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For example, the title company fails to discover before closing there are back property taxes owed on your house. Or maybe a divorce by the previous owners has muddied the title to the house. These examples might sound minor, but they can cost thousands in fees without title insurance.
Buying a new home and think there’s a clear title? Many consumers think they’re the first owner if they’re building a home on a lot, but it’s just as likely there were prior owners of the land. A title search will uncover any existing liens.
What types of tile insurance are there?
Let’s concentrate on two types of title insurance: lender and owner. The lender’s policy is often based on the dollar amount of your loan and protects the lender’s interests in the property against a problem with the title. The policy coverage decreases each year as the loan is paid off.
An owner’s policy is taken out in the amount of the real estate purchase at closing for a fee and lasts as long as you own or have an interest in the property. Owner’s title insurance fully protects you, the homeowner, in the event that there’s a problem with the title that wasn’t discovered during the title search. This type of insurance also pays for any legal fees involved in defending a claim to your title. Think of owner’s title insurance as helping to protect your equity, your investment in a home.
Getting the most from title insurance
The cost of title insurance depends on the value of your property. In Texas, title insurance rates are set by the Texas Department of Insurance. Below are some tips to consider when buying title insurance. Be sure to consult with your Texas Realtor for more information.
If you’re buying a pre-owned home or are in a buyer’s market, ask the seller to pay for your coverage. It can’t hurt, and it might just save you lots of green. You might have heard the adage that everything’s negotiable, and title insurance falls into that category.
Ask about inflation coverage. In the case of owner’s coverage, as the value of the home rises, so does the amount of your protection.
Ask about extended coverage. Title insurance policies may exclude coverage in the event of lot-line debates, unrecorded mechanics liens, and easement problems. Extended coverage can provide protection against such claims.
If you buy your own policy in addition to your lender’s policy, check it for exceptions that may leave you with less protection than you want.
Learn more about buying a home at arlingtonrealtor.com.