Home Buying Guide: What is Title Insurance?

Buying a home is a long process and entails many steps. For this matter, first time homebuyers can quickly become overwhelmed by the entire process. Additional fees and costs can quickly accumulate. Moreover, the pressure of obtaining affordable housing in overpriced housing markets elevates stress levels. Because home purchases are huge investments for the mortgage lender and homebuyer, different types of insurances are necessary to protect both parties. Typical insurances include mortgage insurance, PMI, hazard insurance, and so forth. Even if you have never financed a home, you are likely familiar with these types of home insurances. However, there is another type of insurance, which is equally important - title insurance.

What is Title Insurance?

Ordinarly, if a product is purchased and the buyer pays cash or arranges financing, the item becomes their possession. Home purchases are no different. On the other hand, if title issues arise, home buyers risk losing their home. New construction homes rarely have title issues, unless problems arise with ownership of the land. Because homes are constantly bought and sold, ownershipp is always changing. Before a home is sold and ownership transferred to the buyer, the original owner msut consent to the transaction. Unfortunatley, some homes are sold without an original owner's consent. Situations such as divorce, joint ownerships, undisclosed heirs, and so forth may result in potential title issues.

For example, let's say a married couple purchases a home together, and then separates or divorces. Even if one party becomes estranged and no longer contributes to monthly mortgage payments, their name will remain on the title unless removed. If the home is sold without the estranged party's knowledge, he or she has the legal right to contest the transaction at the new owner's expense.

Benefits of Title Insurance

Acquiring title insurance is required by the majority of mortgage lenders. There are two types of insurances. One is purposed to protect the mortgage lender, while the other type protects the homebuyer. The homebuyer is responsible for paying for both policies. In a nutshell, title insurance protects both parties against legal claims against the property. Unlike other insurances that provides protection against possible future events, title insurance protects against past events. Therefore, any mistakes or flaws concerning the title will not result in the homebuyer losing their home.

Title insurance is inexpensive. Furthermore, the policy is only paid once, with no renewals or expiration dates. Thus, the policy will remain active for as long as you own the property.