What Is Title Insurance?

Title insurance is an important part of any real estate transaction, but many homebuyers do not fully understand what it is or why they need it. Here is what you need to know.\n\nWhat Is Title Insurance?\n\nTitle insurance protects you and your lender against losses that may result from problems with the property's title. A title problem could be a previous owner's unpaid liens, an undisclosed heir claiming ownership, a forgery on a past deed, or a mistake in public records. Title insurance covers the cost of defending your ownership and compensates you for covered losses.\n\nOwner's Policy vs. Lender's Policy\n\nThere are two types of title insurance policies. The lender's policy protects the lender's investment in the property. Most lenders require you to purchase a lender's policy as a condition of the loan. The amount of coverage is equal to the loan amount.\n\nThe owner's policy protects your equity in the property. It covers the full purchase price and increases as your equity grows. The owner's policy is optional but strongly recommended. For a one-time premium paid at closing, you are protected for as long as you or your heirs own the property.\n\nWhy Title Insurance Matters\n\nTitle problems can surface years after you purchase a home. A contractor who was never paid by a previous owner could file a lien. A relative of a past owner could come forward claiming an interest in the property. A recording error in the county clerk's office could create a cloud on your title. Without title insurance, you would bear the legal costs and potential losses of resolving these issues yourself.\n\nThe title company performs a thorough search of public records before issuing a policy, which catches many potential problems before closing. But some issues can only be discovered later. That is what title insurance is for.\n\nTitle insurance gives you peace of mind. For a one-time cost at closing, you protect your investment against title problems that could otherwise threaten your ownership.