Title insurance can protect your home if a previous owner tries to claim your property
- Title insurance protects a lender or homeowner if someone sues you saying they have legal claim on your property.
- While lender's title insurance protects your lender's interest in your property, it provides no protection to you as the homeowner.
- To protect your own financial investment in your home, you'll need to buy a separate owner's title insurance policy.
- Visit Business Insider's homepage for more stories.
There's a lot to keep track of during the home-buying process. From getting the necessary paperwork to your lender to performing home inspections to securing homeowner's insurance, the task list can seem endless.
But in the midst of the flourish of activity, there's one step you don't want to overlook - buying title insurance. For most of us, our homes are the largest purchases we'll make throughout our lives, and title insurance can protect your investment. Let's take a look at what title insurance is and why you need it.
What is title insurance?
Title insurance protects a lender or homeowner's investment in the event that you are sued by someone who says they have a claim on your home.
When you hire a title insurance company, they'll perform a title search on your home. During their search, they'll look for any issues that could stand in the way of the seller being able to transfer full ownership of the home into your name.
If the title company uncovers any issues, some may be easy to fix. If so, they'll take the necessary steps to clear the title before you close on the home. Once the title has been cleared (or cured), the title company will issue a title insurance policy that will remain effective for as long as you own the home.
What's the difference between lender's title insurance and owner's title insurance?
If you're financing your home purchase, your lender will typically require that you buy a lender's title policy. But the limitations of these policies are indicated by their name. Lender's title insurance only protects the lender's investment, not yours.
If you want to protect yourself, you'll need to purchase an owner's title insurance policy as well. You can shop around for owner's title insurance or you can purchase it from the same company that is providing the lender's title insurance. In most cases, you'll save money by using the same insurer for both policies.
Is an owner's insurance policy really necessary?
Buying an owner's title insurance policy is almost always a good idea. An owner's title insurance policy provides the peace of mind that you'll be protected against any title claims on your home.
Some of the most common title claims are related to unpaid taxes. If the homeowner before you has an unpaid property tax bill and you don't have an owner's title insurance, you'll either need to pay the taxes out of your own pocket or risk losing your home.
And if the previous owner failed to pay home contractors for their services, they may be able to make a title claim as well.
It's true that title companies will do their best to uncover issues like these during the title search phase. But not all issues are easily identified, especially when they're related to things like forged signatures, filing mistakes, or unknown heirs.
It's important to point out that an owner's insurance policy will not only cover the purchase price of your home but will also cover your legal costs should you need to defend your property in court.
And if you purchase extended coverage, your owner's title insurance policy may even cover title issues that surface after the purchase of your home.
Title insurance: One-time price, lifetime protection
The best part about title insurance is, unlike other types of insurance, you don't need to renew your policy over and over again. You pay your premium once and the policy lasts as long as you're the owner of the home.
If you're getting ready to buy a home, you should strongly consider buying an owner's title insurance policy. Yes, the odds are high that you won't ever need to deal with a title claim. But if you do, title insurance could help you keep your home and protect your financial investment.
More coverage from How to Do Everything: Money
How to prepare your credit for a mortgage
How to buy a house
How to find the best mortgage rate
How to buy a house with bad credit