Buying a new home is a significant investment, and it is only natural that you want to protect yourself from any future vulnerabilities. Title policies help you do just that. But how much is title insurance going to cost you? Let’s find out!
What is Title Insurance?
Title insurance is a policy that safeguards the interests of both the homeowner and the lender in cases of issues associated with the house’s title, including:
- Liens or lawsuits
- Undisclosed heirs
- Errors in deeds
What are the Title Insurance Costs?
Title policies usually cost about 0.5% to 1.0% of the home’s purchase price and are included in the home’s closing costs. You will get either a cumulative quote or an itemized breakdown of the policy, depending on the state you live in.
A typical title insurance policy quote will include the following title fees:
Title Search Fee:
A title search helps verify that the seller is the legal owner of the property being sold. It also ensures that the house has a clean title, i.e., it has no outstanding secured debts, liens or lawsuits, undisclosed heirs, etc. This is essential to protect the new homeowner from future monetary or ownership disputes related to the title.
A title company or an attorney representing the buyer can conduct the title search. Depending on the property, the cost of a title search usually ranges from $100 to $250 for a standard single-family home. On the other hand, a land search could cost around $1,000.
Title Settlement Fee:
A title settlement fee is paid to the title company that acts as the settlement agent at closing. It covers the administrative cost of closing and is separate from the net property value. This fee includes escrow fees, land survey fees, notary fees, deed preparation fees, etc. For the state of Georgia, the title settlement fee ranges from $350 to $600.
The title settlement fee is usually paid by the buyer or split between the seller and buyer.
Lender’s Title Insurance:
A lender’s title insurance generally protects the mortgage lender financing your transaction from someone claiming a right to your house. It is issued for the loan amount given to the buyer, and as the debt reduces, so does the liability.
When purchasing a house using a mortgage or a loan, you will mandatorily need a lender’s title policy.
Owner’s Title Insurance:
An owner’s title insurance policy secures the homebuyer’s transaction from real estate-related issues. Though purchasing a homeowner’s title policy isn’t compulsory, it is highly recommended to prevent any financial losses later on.
You have to pay a one-time fee, and its coverage lasts for as long as you or your heirs own the property.
In some states, like Georgia and Alabama, the law mandates the presence of a real estate attorney at closing. They review contracts and other paperwork, including the title. The attorney fee is their remuneration for their services and is split between the seller and the buyer.
Real estate attorneys usually charge an hourly fee from $150 to $400.
Abstract and Recording Fee:
The title abstract is a legal record of a property’s title history. It includes information about past title transfers, liens, and legal actions against the property. The abstract is a crucial document for buyers to ensure a clear title. It is issued by an abstraction.
The seller pays the abstract fee, which can go up to $400.
Recording refers to the registration of the change in ownership of a house or the sale of a property in the public record. It also records mortgages and other liens against the home.
The county usually charges the recording fee, which costs $125 on average.
Understanding the Types of Title Insurance Policies
1. Owner’s Title Insurance
Homeowner’s title policy helps protect the buyer from future vulnerabilities that may befall them due to a defective title. It covers problems like:
- Third-party claims to the title
- Pre-policy fraud
- An unmarketable title
- Building permit violations
- Post-policy forgery
If someone raises a claim to the property, the title insurer will bear the costs of legal representation. They will also reimburse the required amount up to the policy limit in case any damages are awarded in the lawsuit.
How Much is Title Insurance for Owners?
The premium for owner’s title insurance is paid just once. However, certain factors determine its cost:
- Government regulations
- The title company
- The coverage chosen
If the premium rates are controlled by the government, an owner’s title policy will cost the same across companies. However, if you have the luxury of shopping around for a policy, you may find one that suits your needs without being heavy on your pocket.
You may even be eligible for a discount if you purchase the owner’s and lender’s title policies from the same company. Moreover, you can get almost a 40% “re-issue rate” discount if you renew the owner’s title policy purchased by the seller. However, the seller must provide the policy document for this to be applicable.
Owner’s title insurance offers two coverages, standard and enhanced. While the standard policy does provide sufficient security to the new homeowner, enhanced title insurance protects against any post-closing vulnerabilities. It typically costs 20% more than a standard owner’s title policy.
Who Pays Owner’s Title Insurance?
Since owner’s title insurance isn’t a compulsion, there is no set regulation about who purchases it. When selling their house, the individual can offer to pay for the cost of the homeowner’s title policy to make the deal more attractive. States like Wisconsin and Illinois have adopted this practice.
In other instances, the buyer can either independently purchase the owner’s title policy or split the cost with the seller.
2. Lender’s Title Insurance
A lender’s title insurance is taken on when you purchase a house either via a mortgage or a loan. Hence, it is also known as a loan policy. It protects the lender’s investment should an ownership dispute arise in the future.
You will mandatorily need a lender’s title policy when purchasing a house using a mortgage.
How Much is Lender’s Title Insurance?
The cost of a lender’s title policy is usually equal to the amount the loan is issued for. The accountability of the title insurer decreases as the loan is paid off.
Who Pays Lender’s Title Insurance?
The buyer has to purchase the lender’s title policy to protect the mortgage broker’s interests in the transaction.
However, sellers may also pay for the lender’s title policy in some states. For example, the buyer pays for title insurance in Virginia. But, in Nebraska and South Dakota, the buyer and seller divide this payment equally.
Who Picks the Title Insurance Company?
Generally, the party that purchases the policies decides which title company to opt for. But, in certain states, the lender will have to approve the title company before finalizing the deal.
Sometimes, the lender or the real estate agent may also provide suggestions for title companies with which they may have tie-ups. They could be getting kickbacks in return for bringing them clients. In such a scenario, you could end up paying inflated title insurance rates, thereby extending your expenses and increasing your stress.
👉 Remember to thoroughly vet the title company you choose to save money and maintain peace of mind.
Lender’s Title Insurance vs. Owner’s Title Insurance
|Lender’s Title Insurance||Owner’s Title Insurance|
|Lender’s policy protects the lender’s interests in the real estate transaction.||Owner’s title insurance looks after the buyer and protects their investment from title defects.|
|The policy is equal to the loan issued.||The policy has a one-time fee paid at closing. There are two coverage options, standard and extended.|
|As the loan is paid back, the liability reduces.||The policy lasts for as long as the buyer or his heirs own the property.|
|Lender’s title insurance is mandatory.||Owner’s title insurance is optional but recommended.|
Average Cost of Title Insurance by State and City
Are Title Fees Negotiable?
Since a title insurance quote includes several fees, there is very little wiggle room for negotiation in its prices. Aspects like lawyers’ title fees, cost of title transfer, title search cost, etc., change based on the process and individual being dealt with.
Nevertheless, the one area you could save is in title insurance rates. If the premiums aren’t regulated by the government, like in New Mexico and California, companies offer their policies at competitive rates. Thus, you can compare different plans and select one based on your requirements.
Who pays for title insurance is another area where there is scope for negotiation. A seller can choose to purchase the title policy to make the deal more attractive. Or, the new homeowner can buy the policy or split it with the seller.
The real estate contract will state the party/parties responsible for paying the title insurance premium.
Alternative to Buying Title Insurance: Warranty of Title
A warranty of title is a legal document where the seller guarantees that they can transfer ownership of the property to the buyer. It also states that no one else has any claim to the house. Thus, it protects the buyer’s interests, allowing them to sue the seller should any dispute arise in the future.
A warranty of title doesn’t provide as much financial protection as a title policy. But, if you are unable to buy a homeowner’s title policy at the time of closing, this document may protect you from vulnerabilities like:
- Unresolved inheritance issues
- Boundary-line disputes or survey inconsistencies
- Undisclosed mortgages
- Outstanding property or federal income taxes
Are Title Costs Worth It?
Yes! Title fees help ensure that all the processes for the title transfer are done accurately. Title insurance is the largest cost you will have to bear among all the title fees.
The purpose of title insurance is to protect against future problems like disputes in ownership, any outstanding liens from the previous owner, encroachment, etc.
With an insured title, you won’t have to spend on legal fees or pay back taxes, saving you money in the long run. All for just a one-time fee! Without a title policy, you risk losing your home to the complainant.
A lender’s policy is automatically included in the closing costs and is a non-negotiable purchase. However, keep in mind that this policy only extends its coverage to the lender. You need a separate homeowner’s title policy to protect yourself from title defects.
Frequently Asked Questions
1. 1. What are title fees?
Title fees are a part of closing costs. They include the charges for carrying out the title search of the property, attorney and notary services, settlement fees, etc. If you want to know how much you will need to pay as closing costs, use Houzeo's closing cost calculator.
2. How much does title insurance cost?
When bought together, the lender's title and owner's title policies usually cost about 0.5% to 1.0% of the home's purchase price. The premium rate is based on the location of the property and the mortgage amount. In some states, title insurance premiums are regulated by the state, while in others, the policies are competitively priced. They can even go as high as $1,000.
3. How much is title insurance for land?
When buying a plot of land, you should also acquire an owner's title policy to protect your investment. It is a one-time fee ranging from 0.5% to 1% of the purchase price.
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