Title Insurance
Understanding Title Insurance
When you’re closing on a home, you’ll hear the term “title insurance” mentioned by your lawyer. While it might seem like a small line item in your closing costs, it’s a crucial policy that provides essential protection. This guide explains what title insurance is, what it covers, and what to expect in terms of cost.
What is Title Insurance? A Simple Definition
Title insurance is a one-time insurance policy that protects you, the homeowner, and your lender from financial loss due to defects or issues with the property’s title (its legal ownership history). Unlike car or home insurance that protects you from future events, title insurance protects you from problems that may have occurred in the past but were unknown at the time of purchase.
What Does Title Insurance Protect Against?
A policy can protect you from a wide range of potential issues, including:
- Undiscovered liens against the property (e.g., unpaid taxes or contractor bills from a previous owner).
- Errors in public records or property surveys.
- Title fraud or forgery.
- Encroachments or boundary issues that were not on the Real Property Report.
- Lack of building permits for previous renovations.
How Much Does Title Insurance Cost?
There is a common perception that title insurance is always inexpensive. For most straightforward home purchases under $500,000, a standard policy is indeed quite affordable, typically costing between $175 and $250.
However, it’s crucial to understand that this is not a fixed price. The cost can vary significantly based on several factors, and assuming it will be cheap can lead to surprises at closing.
Factors That Can Increase the Cost
The premium for a title insurance policy can be influenced by:
- Value of the Property: Higher-value homes and larger mortgages require more coverage, increasing the premium.
- Property Type: A property characterized as commercial (like some multi-unit buildings) will have a higher cost than a standard residential home.
- Lender Type: Private lenders often require more extensive (and expensive) coverage than major banks.
- Special Endorsements: Extra coverage for specific risks, like super-priority liens, can add to the cost.
A Pro Tip from a Realtor’s Perspective
In a real estate contract, a seller might agree to pay for the buyer’s title insurance, especially if a current Real Property Report (RPR) isn’t available. This can be risky for the seller if the cost is higher than expected.
To protect our selling clients, we often recommend adding a limit to this clause in the contract, such as: “Seller will pay for buyer’s Title Insurance to a maximum of $250.” As a buyer, it’s important to be aware that if your specific situation (e.g., using a private lender) results in a higher premium, you may be responsible for the difference. This is a key point of negotiation that your Realtor® will manage on your behalf.
For a complete overview of the buying journey, return to the Ultimate Guide to Buying a Home.
Offer & Closing FAQs
Have more questions about the final steps? Contact us for a free consultation.
What makes an offer ‘strong’ besides the price?
A strong offer has several components. A significant deposit shows you are a serious buyer. Fewer conditions (like financing and inspection) make your offer more attractive and less risky for the seller. A possession date that aligns with the seller’s preferred timeline can also be a powerful negotiating tool. Finally, being fully pre-approved for your mortgage is essential.
What is the difference between a ‘conditional offer’ and a ‘firm offer’?
A ‘conditional offer’ means the sale is subject to certain conditions being met, most commonly a satisfactory home inspection and the buyer securing formal financing. The deal is not legally binding until these conditions are waived. A ‘firm offer’ has no conditions and becomes legally binding as soon as the seller accepts it.
What happens to my deposit? Is it refundable?
Your deposit is held in a secure trust account by the seller’s real estate brokerage. It is not given directly to the seller. The deposit forms part of your down payment. If your offer is conditional and you decide not to proceed because a condition (like the home inspection) isn’t satisfied, your deposit is typically returned to you in full.
What does a real estate lawyer do for a buyer?
Your real estate lawyer is crucial for protecting your interests. They review the purchase contract, search the property’s title to ensure it’s free of liens or issues, coordinate with your lender to receive mortgage funds, handle the transfer of funds to the seller’s lawyer, and legally register the home in your name.
What happens on possession day?
On possession day (or closing day), the lawyers handle the final transfer of funds and ownership. Your lawyer will receive the mortgage funds from your lender and transfer them to the seller’s lawyer. Once the money is confirmed received and the title is registered, the sale is complete. At that point, the seller’s lawyer authorizes the release of the keys, and you can officially take possession of your new home.
