You’ve likely heard your real estate agent talk about title insurance. It might have been in passing when they listed all the closing costs, but it may not be clear to you why it is necessary or who will be paying for it!
Who Pays for Title Insurance?
This depends on where you live and what is currently customary and expected. In most areas, the buyer is expected to pay for title insurance. But as with most issues in the purchase contract, everything is subject to negotiation.
Two Kinds of Title Insurance: One for the Seller, One for the Lender (and Buyer)
Title insurance, at its core, defends the policyholder from future ownership claims, liens from past owners, easements, and any other title complications. The title officer will conduct a title search prior to the property purchase and will notify both buyer and seller if there are any issues. The seller will clear up the issues and then the title company will underwrite a policy that ensures their legal claim of ownership on the home.
If the buyer needs a mortgage, the lender will require a title insurance policy that ensures it has a proper first lien on the property. The lender’s policy will also protect the lender financially in the case that the seller doesn’t have full ownership of the home or in the case that there are legal disputes having to do with wills, divorces, or other clerical problems at the courthouse.
The buyer is not required to get their own policy, but it’s recommended. Because if there are problems, only the lender will be protected and the borrower could face legal costs of hundreds of thousands of dollars should a dispute arise.
Sellers, if you’re having major work done on your home prior to selling it, make sure to put a clause in your contract that requires the vendor, upon payment, to issue a receipt and immediate release of the lien they’ve placed on your home. Contractors typically put liens on the homes they work on to ensure they get paid. But sometimes contractors don’t release the liens immediately and even though you’ve paid them, the lien shows up on a title. Make sure to get a receipt so you have proof you’ve paid. (You might also want to read How To Prevent A Lien From Ruining Your Home Sale.)
How Much Does it Cost?
The average cost of title insurance is $1,000, but it varies by state and sometimes depends on the value of the property. In unregulated states, premiums can be as high as 1% of the loan amount.
If you’re located in a state like Florida that tightly regulates the insurance industries, you will find very little variation in premiums. But in states that are not regulated as heavily, the costs can vary widely. So you should shop around using the American Land Title Association website.
Despite your location, there are several ways to save money on title insurance policy:
Negotiate the add-ons. Insurance companies located in states with tight regulation will try to increase their coffers by charging customers extra for mailing and courier costs or for copying. Each title search could cost you extra as could issuing a certificate. Be sure to ask ahead of time what your premium covers and what costs extra. Then ask to have those extra charges reduced or dropped. If the title company refuses, go to another one.
Ask for a simultaneous issuance. Your lender will require you to buy a title insurance policy for them. But if you want one for yourself, that’s obviously going to cost more money. If you ask for your title company to issue the two policies simultaneously, it will cost you less than if you asked for the policies to be issued separately.
Spending the extra money on a title insurance policy for yourself might seem like overkill if you’re already buying one for the lender. But given that mistakes can happen and people can be dishonest, you want to protect yourself. Plus, there are ways to bring down the cost so that the insurance isn’t such a burden.