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12 min read Nov 30, 2022

What is Title Insurance and Why You Need It

Title Insurance

The title insurance industry has grown by an average of 6.6% every year from 2017 to 2022. The expanding market reflects how new homeowners want to protect their investment years after closing. But what exactly is title insurance? 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
  • Forgery
  • Encroachment
  • Undisclosed heirs
  • Errors in deeds

How Title Insurance Works?

A title company carries out a title search before the sale is complete to ensure that the house is free from the above problems. At this stage, it examines past bankruptcies, divorces, deaths, and court documents as well as vets the seller’s ownership of the property.

The company also informs the buyer and lender of any secured debts that need to be settled before the closing. However, if a complaint is filed further down the road, the title insurer will either defend you in the lawsuit or reimburse the required amount up to the policy limit.

A standard title policy usually offers coverage for common claims against a title. But remember that it is subject to certain conditions and exclusions.

👉 You must read the policy document carefully to ensure you aren’t caught by surprise when filing a claim.

Types of Title Insurance

There are two types of home title policies, owner’s title insurance and lender’s title insurance.

What is Owner’s Title Insurance?

Buying a house can be a costly affair. Hence, you deserve an extra level of protection when it comes to the ownership of the property. An owner’s title insurance policy secures the homebuyer’s transaction from real estate-related issues.

While an owner’s title policy isn’t compulsory, it is a highly recommended investment. Further, it is valid for as long as you or your heirs own the property.

What Does Owner’s Title Insurance Cover?

Title insurance coverage for owners is available in two forms: standard and extended or enhanced.

  • Standard Owner’s Title Insurance: This policy generally protects the new owner from third-party claims to the title, pre-policy fraud, an unmarketable title, liens, etc.
  • Extended or Enhanced Title Insurance: This policy includes all the standard coverages and certain additional perks. These are protection from unrecorded liens (estate tax liens), building permit violations, post-policy forgery, etc.

An owner’s title policy is necessary to safeguard your equity in case of a title dispute. The coverage these policies provide may differ from one title company to another, but they follow a similar framework.

» Owner’s Title Insurance: Should you get an owner’s title insurance policy?

What is 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. As the seller pays off the loan principal, the policy value decreases and eventually expires when the mortgage is fully paid off. Similarly, if the property goes into foreclosures, the lender is the first to get paid.

When purchasing a house using a mortgage loan, you will need a lender’s title policy, also known as a loan policy.

What Does Lender’s Title Insurance Cover?

A lender’s title policy only covers the interests of the lender in the real estate transaction.

» Lender’s Title Insurance: Check out our guide to lender’s title insurance to make your home-buying process seamless.

What is Not Covered in Title Insurance?

Title insurance limits its coverage to conflicts surrounding the legal ownership of the property. It doesn’t offer the insured homeowner reimbursement for situations like:

  • Pest infestations
  • Mildew or mold
  • Fire damage
  • Weather damage
  • Repairs for damages not caused by the seller or previous owners
  • Underground fuel tanks
  • Title defects identified at the time of purchase

Usually, a different plan covers these issues: homeowner’s insurance or home insurance. People often consider a title policy and home insurance to be synonymous, but that isn’t the case.

Title insurance companies cannot help you if a flood damages your house. On the other hand, a homeowner’s insurer will, depending on the policy coverage and its terms and conditions.

How Much is Title Insurance?

Title companies offer insurance for a one-time fee, usually paid along with the closing costs of the real estate transaction. To know how much you will have to pay in closing costs, you can use Houzeo’s closing costs calculator.

According to the VP of communications for the American Land Title Association (ALTA), 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.

For example:

Home Price$300,000
Title Insurance Cost$1,500 to $3,000

Certain states in America, like Texas and Florida, have government-regulated title policy premiums. On the other hand, states like New Mexico and California have unfixed premiums, allowing you the luxury of choice. Your state’s Department of Insurance can provide you with the most updated information on the title insurance premium regulations being followed.

» How Much is Title Insurance: Here’s an in-depth look at property title insurance rates across America.

How is Title Insurance Calculated?

The cost of title insurance can be calculated using this formula:

Purchase Price of the House x Rate Per Thousand Used by the Title Company

Suppose a title insurer is offering 0.6% per thousand, and your new property costs $300,000. Then, you’re looking at $1,800 as title insurance costs.

Various factors affect the cost of insurance premiums, particularly the state you live in and the price of your home. Additionally, the hours taken to carry out the title search, examination, and rectification of any title irregularities can also cause the title insurance rates to fluctuate.

👉 Title Insurance Calculator: Find out the title insurance rate for your property here.

What Costs are Included in Title Insurance?

A title insurance quote will typically include a list of itemized fees, some of which are:

  • Title search fee
  • Deed preparation fee
  • Transfer tax
  • Government recording charges
  • Settlement fee
  • Notary fee

👉 Certain states have to provide a cumulative title policy quote instead of an itemized one. Ask your title insurer for a breakdown of the quote.

Find out how much title insurance may cost in your state and city:

RegionStates/CitiesHow Much is Title Insurance Near Me
NortheastStatesHow Much is Title Insurance in Connecticut | How Much is Title Insurance in Maine | How Much is Title Insurance in Massachusetts | How Much is Title Insurance in New Hampshire | How Much is Title Insurance in New Jersey | How Much is Title Insurance in New York | How Much is Title Insurance in Pennsylvania | How Much is Title Insurance in Rhode Island | How Much is Title Insurance in Vermont
NortheastKey CitiesHow Much is Title Insurance in Boston, MA | How Much is Title Insurance in Philadelphia, PA | How Much is Title Insurance in New York City, New York
MidwestStatesHow Much Is Title Insurance in Illinois | How Much Is Title Insurance in Indiana | How Much Is Title Insurance in Iowa | How Much Is Title Insurance in Kansas | How Much is Title Insurance in Michigan | How Much is Title Insurance in Minnesota | How Much Is Title Insurance in Missouri | How Much Is Title Insurance in Nebraska | How Much Is Title Insurance in North Dakota | How Much is Title Insurance in Ohio | How Much is Title Insurance in South Dakota | How Much is Title Insurance in Wisconsin
MidwestKey CitiesHow Much is Title Insurance in Detroit, MI | How Much is Title Insurance in Chicago, IL | How Much is Title Insurance in Milwaukee, WI | How Much is Title Insurance in Madison, WI | How Much is Title Insurance in Cincinnati, OH | How Much is Title Insurance in Minneapolis, MN
SouthStatesHow Much is Title Insurance in Alabama | How Much Is Title Insurance in Arkansas | How Much Is Title Insurance in Delaware | How Much Is Title Insurance in Florida | How Much Is Title Insurance in Georgia | How Much Is Title Insurance in Kentucky | How Much Is Title Insurance in Louisiana | How Much Is Title Insurance in Maryland | How Much Is Title Insurance in Mississippi | How Much Is Title Insurance in North Carolina | How Much is Title Insurance in Oklahoma | How Much is Title Insurance in South Carolina | How Much Is Title Insurance in Tennessee | How Much Is Title Insurance in Texas | How Much Is Title Insurance in Virginia | How Much Is Title Insurance in Washington D.C. | How Much is Title Insurance in West Virginia
SouthKey CitiesHow Much is Title Insurance in Austin, TX | How Much is Title Insurance in Atlanta, GA | How Much is Title Insurance in Miami, FL | How Much is Title Insurance in Raleigh, NC | How Much is Title Insurance in Naples, FL | How Much is Title Insurance in New Orleans, LA | How Much is Title Insurance in Nashville, TN | How Much is Title Insurance in Houston, TX | How Much is Title Insurance in Dallas, TX | How Much is Title Insurance in Baltimore, MD | How Much is Title Insurance in Charlotte, NC | How Much is Title Insurance in Columbia, SC | How Much is Title Insurance in Tampa, FL | How Much is Title Insurance in Tulsa, OK
WestStatesHow Much is Title Insurance in Alaska | How Much is Title Insurance in Arizona | How Much is Title Insurance in California | How Much is Title Insurance in Colorado | How Much is Title Insurance in Hawaii | How Much is Title Insurance in Idaho | How Much is Title Insurance in Montana | How Much is Title Insurance in Nevada | How Much is Title Insurance in New Mexico | How Much is Title Insurance in Oregon | How Much is Title Insurance in Utah | How Much is Title Insurance in Washington | How Much is Title Insurance in Wyoming
WestKey CitiesHow Much is Title Insurance in Los Angeles, CA | How Much is Title Insurance in Fresno, CA | How Much is Title Insurance in San Diego, CA | How Much is Title Insurance in San Francisco, CA | How Much is Title Insurance in Palm Springs, CA | How Much is Title Insurance in Denver, CO | How Much is Title Insurance in Bakersfield, CA | How Much is Title Insurance in Salt Lake City, UT | How Much is Title Insurance in Portland, OR | How Much is Title Insurance in Colorado Springs, CO | How Much is Title Insurance in Phoenix, AZ | How Much is Title Insurance in Albuquerque, NM

Title Insurance on a Refinance Loan

A refinance loan helps lower the monthly mortgage cost or shorten the mortgage term for the homeowner. In such cases, a renewed title policy comes into play.

During a refinance, the homeowner’s details remain unchanged. Hence, the owner’s title policy doesn’t expire and remains valid if there isn’t a transfer in ownership. On the other hand, since you would be purchasing a loan again, you would need to get a new lender’s title policy.

A new loan insurance plan is compulsory even if you borrow money from the same lender as your earlier one. This is because, in the time since you took the original policy, there may have been new liens or court orders placed on your property. The lender must protect his investment and ensure that he regains the loaned amount.

Typically, for a refinance loan, the cost of the lender’s title policy is around 0.5% of the loan balance.

Who Pays for Title Insurance?

This kind of insurance is often considered a part of the closing costs of the real estate transaction. But there are a few differences when paying for the title policies.

Who Pays for Owner’s Title Insurance?

Since owner’s title insurance isn’t a compulsion, there is no set regulation about who purchases it. When selling a home, the seller can offer to pay for 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.

Who Pays for 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, in some states, sellers may also pay for the lender’s title policy. For example, the buyer pays for title insurance in Virginia. But, in Nebraska and South Dakota, the buyer and seller divide this payment equally.

Is Title Insurance Necessary?

The short answer is yes!

Even though the 22-billion-dollar title insurance industry may make it seem like an unnecessary expense, it is a vital investment. 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 average 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.

When to Buy Title Insurance?

Typically, the title insurance process is kick-started by a third party at the end of the property purchase agreement. You can also buy a policy after closing, though this is not recommended.

A number of issues can pop up in the time between closing the sale and obtaining the title policy, including:

  • Errors in public records
  • Unpaid liens
  • Undiscovered heirs

If you don’t have an owner’s title policy when these issues arise, you may find yourself in hot water! So remember to include it in your real estate transaction.

Where to Buy Title Insurance?

Title insurance companies that carry out the title search of the property often also offer title policies. Shopping around for policies will allow you to compare the features of the different plans and opt for one that best suits your needs and your pocket.

Additionally, you can follow the recommendations of the real estate agent or the seller, but ensure that you thoroughly examine the company before opting for it. You can also choose a homeowner’s title policy from the same company as the lender’s policy. This may allow you to get both policies at a discount.

👉 You can find title companies in your state here.

Alternative to Title Insurance: Warranty of Title

A warranty of title is a legal document where the seller guarantees that they are allowed to 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

Frequently Asked Questions

Do I need title insurance?

Yes. You will need to buy a lender's title insurance policy if you take out a loan to purchase your home. This policy will protect the lender's interests if you face a dispute in property ownership. On the other hand, an owner's title insurance policy, though optional, will provide you with additional security.

Do I need title insurance if I pay cash?

No. If you pay cash for your home, you don't have to buy a lender's title insurance policy. However, you should still invest in a homeowner's title policy to protect your home from situations like forgery, liens, encroachment, errors in deeds, etc. In such cases, the title company will either represent you in the lawsuit or reimburse the amount to the complainant.

How long is title insurance good for?

Owner's title insurance is valid for as long as you or your heirs own the property. In the case of warranty titles made when selling the house, the policy's coverage may last forever. A lender's title insurance is issued for the loan amount given to the buyer. So, as you pay back the debt, the insurer's liability also decreases.

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