There are a lot of additional expenses beyond the actual cost of your home when you purchase real estate. In fact, when you look at your settlement statement, the amount due is often thousands of dollars more than the purchase price of the property.
The reason for those extra costs stems from the various professional services rendered as part of the closing process. The person inspecting the property for defects has to get paid for that work, as does the appraiser verifying that the home value matches the mortgage amount.
Since you can’t bypass those expenses, you may feel tempted to chip away at the cost by excising other line items from the settlement statement, like a buyer’s title policy. Doing that could prove to be a massive mistake.
What does title insurance cover, anyway?
You may not realize it, but title insurance is the only thing protecting your ownership of the property from a claim of ownership or a lien taken out by someone else. It doesn’t happen a lot, but it happens more than many people imagine. There are many reasons why a title claim could arise months or even years after you sign on your home.
It could have to do with a divorce or with the way someone handled an estate in the past. It could even be that you were the victim of fraud, especially if someone passed the title to you via a quit claim deed. While these are official forms, all they convey the ownership interest of one party to another. If that person doesn’t have a legal right to sell the property, your claim to ownership could be in jeopardy.
Why are there two separate title policies issued?
One thing that confuses a lot of soon-to-be homeowners is the fact that there are often two separate title insurance fees on the settlement statement. One is a lender’s policy, and the other is a buyer’s policy.
The lender’s policy protects your mortgage company against financial loses in the event that a title issue comes up at a later date. After all, they are the ones sending thousands of dollars to the seller or the company that held the seller’s mortgage.
That policy will not protect your interest in the property or the amount of money you’ve invested in it. A buyer’s policy protects you and every cent you spend, from your down payment to your accrued equity. Not only will a title policy help cover the cost of an attorney to argue your rights of ownership, it will compensate you should the case not go in your favor.
That compensation will allow you to move on a purchase for a new home. Without a buyer’s policy, you will have to pay for an attorney on your own, and you could stand to lose everything you’ve invested in becoming a homeowner.