What is Title Insurance, and What are the Myths Surrounding it?

• Real Estate Tips
• September 14, 2023

How Does Title Insurance Work?

When you are purchasing a home, there are a few key steps involved when it comes to obtaining the title. A title to a home is a legal document used to prove the true ownership of a home, and with that concept comes many nuances and potential financial issues or problems with the sale.

Simply put, title insurance on a house exists to protect both mortgage lenders and home buyers from certain things, such as:

1. Damages
2. Financial Losses 

Essentially, this type of insurance is a form of protection that helps to ensure the ownership rights and interests of the homeowner, as well as safeguard against any potential issues or defects in the property’s title. Most policies are meant to tackle difficult financial concepts and protect the buyer from outstanding liens, conflicting wills, and back taxes.

If you are a first-time home buyer, title insurance may be a difficult concept to understand. But, a seasoned Realtor and mortgage lender will be able to discuss the concepts and intricacies of title insurance. Keep reading to learn more about common real estate terms and some of the most common myths of title insurance!

What are Some of the Most Common Myths Surrounding Title Insurance?

According to Equity Title, there are many different myths surrounding title insurance. Here are 4 of the most popular myths that go hand in hand with title insurance:

1. The Types of Title Insurance: Although many first time homeowners or potential buyers are under the impression that there is only one kind of title insurance available when they purchase a home, that is simply not the case. Instead, it is important to understand that there is both the owner’s policy and a loan policy. An owner’s policy protects the homeowner against loss or damage due to a covered title defect, while a loan policy protects the mortgage lender until the loan is repaid.
2. Title insurance Increases Your Mortgage Payment: You do not have to pay for title insurance monthly with your mortgage! When you purchase title insurance, you pay a one-time fee based on the purchase price of the home. It accounts for a small percentage of the closing costs.
3. Homeowner’s Insurance and Title Insurance are the Same: Unfortunately, this is not a two-for-one situation. While homeowner’s insurance only covers loss or damage resulting from an insured event, title insurance only protects the home buyer’s investment.

Should I Discuss Title Insurance with My Realtor?

It depends. If you feel as if it is a valuable addition to your life and a necessary precaution, it may be worth it to opt for additional insurance. Many homeowners argue that insurance is neccessary, especially considering that during the pandemic, a multitude of individuals chose to purchase their homes as is.