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Home Buyer Tips: What Is Title Insurance?


If you’ve researched the costs associated with buying a house then you’ve seen the fees associated with title insurance. But unless you’ve purchased a home before, it’s probably a new term for you. So, what is title insurance, do you need it and what does it protect?


Let’s talk title insurance
When you buy a piece of property (land or home) you will receive the title for it. This piece of paper  says that the you, the owner, now have possession and legal rights to the property.  That’s step 1. Step 2 is to do a search on that title to be sure there are no liens against it.

Most lenders will require both a lenders title policy and an owner’s policy. Both policies are designed to cover issues that could arise due to problems from the possibility that the previous owner didn’t have the property free and clear.

For example, maybe the seller inherited the property as stated in a will. The seller has no interest in keeping the property and is happy to sell it to you. This seems fine except that two years later, it’s discovered the will was out of date and a newer will had actually designated the property should go to a different long-lost relative. Obviously, there will be a lot of legal fees associated with correcting this kind of situation. The court may decide that the long-lost relative should in fact be the true owner.


Do you need it?
Yes, and if working with a lender it won’t be optional. See below as to why.


What does title insurance cover?
Looking at the example above, the lender’s policy would cover the amount you still owe on the mortgage. The owner’s policy would reimburse you the payments you’ve made and reimburse you for the down payment. In the example above, you will already have lost the property but at least you will have some financial reimbursement to buy another one.


What’s the cost?
Thankfully, the title insurance does not need to be renewed each year. The one time fee is collected at closing and protects you throughout ownership of the home (that is, it protects your from the liens of a previous owner but not from future liens you may incur).  The costs are generally similar from carrier to carrier though your lender may have a preferred company to use. Buyers can expect to pay around 1% of the loan cost.


Are you looking to buy a Nashville home and have questions about title insurance or other aspects of the home buying process?  Call DeSelms Real Estate today at 615.550.5565 and let one of award winning agents help you!

Photo by nyphotographic / CC BY

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