How Much is Title Insurance? Coverage & Costs

If you’re buying a home for the first time, you’ll encounter all sorts of costs, and some of them will leave you scratching your head. One of these mysterious expenses is home title insurance. If you’re wondering what this insurance is for, how much it’s going to cost you, and whether you really need it, keep reading!

What is “Title” in Real Estate?

In real estate, “title” refers to legal ownership of a property. When you buy a home, you’re not just purchasing the physical building and land. You’re also acquiring the title, which gives you the rights that come with ownership. These rights include the right to occupy the property, sell it, rent it out, and make improvements to it. Note that there are usually limitations and restrictions to property ownership rights, such as easements, liens, and zoning regulations.

What Is Title Insurance?

Home title insurance is a type of insurance policy that protects you and your mortgage lender against problems with the property’s title. These issues can affect your ownership rights and even the ownership itself.

What Does Title Insurance Cover?

Home title insurance covers a wide range of potential problems that could be uncovered after the sale has closed. Some common issues are:

• Previously undiscovered liens against the property.
• Errors in public records or in the deed itself.
• Forged documents in the past chain of title.
• Unknown heirs claiming ownership.
• Easements that weren’t properly recorded.
• Survey errors or boundary disputes.

If any of these issues arise after you buy your home, your title insurance policy will help cover the legal costs to resolve them and may compensate you for financial losses.

Do I Need Title Insurance If the Title Search Was Clear?

Even the most thorough and professional title search can miss things such as misfiled documents and unknown heirs to the property. These problems can be uncovered after a sale closes, which is why title insurance is necessary even if your title search comes back clean.

Title insurance has become even more important, with identity theft and document forgery becoming so sophisticated. Scammers have sold homes that didn’t belong to them by assuming fake identities and forging ownership documents. Bad actors have also imitated long-lost relatives to make false claims as heirs to properties. Criminals have also taken out loans against homes only to disappear with the proceeds, leaving the homeowner with an outstanding lien on their property.

What Are the Types of Title Insurance?

There are two basic types of title insurance: one that protects the mortgage lender and one that protects the property owner.

Almost all mortgage lenders require lender’s title insurance to cover their interest in the property (the outstanding loan amount). This coverage decreases as the owner pays down the mortgage.

Owner’s title insurance is not required but is highly recommended. The cost is relatively low compared to a home’s value, and the protection it provides can save an owner tens of thousands of dollars if problems arise. This type of coverage continues until the owner sells the property.

How Much is Title Insurance?

Title insurance cost varies by location and purchase price. Owner’s title insurance is typically 0.5% to 1% of the home’s purchase price, and lender’s title insurance is usually between $500 and $1500.

The total title insurance cost for both policies on a $300,000 home might range from $2,000 to $4,500, depending on your location and the title company that is used.

Who Pays for Title Insurance?

Who pays for title insurance on a home largely depends on local norms but can often be negotiated. The seller pays for owner’s title insurance in many states, including Texas, Florida, and California. The buyer almost always pays for the lender’s title insurance.

Who pays for title insurance is not set in stone. Buyers and sellers can negotiate who covers each policy in the purchase agreement. If in doubt, ask your real estate agent what the typical practice is in your area and whether it makes sense to negotiate the fees.

Factors That Affect Title Insurance Cost

Title insurance cost can be higher or lower depending on:

• The home’s purchase price: A higher home price generally raises the title insurance cost.
• Location of the home: Title insurance cost varies from state to state and even within some states.
• The title company: Different companies may charge different rates or offer discounts.
• Property features: Unusual properties can be more expensive to insure. For example, properties that were assembled from multiple parcels of land may have more title risks.

How to Save on Title Insurance Cost

You can’t avoid the title insurance, but you may be able to reduce the expense. Here are a few ways to cut down on title insurance cost:

• Shop around: prices are often regulated, but different title companies may offer discounts or bundled services that lower the overall rate.
• Check to see if your lender has a preferred provider: they may give lower rates for the lender’s clients.
• Look for discounts for new construction title insurance.
• Investigate reissue rates, which might be available if there was a previous title insurance policy issued on the property recently.
• Negotiate with the seller to cover the cost of the owner’s title insurance cost.

Is Title Insurance Worth It?

Considering that legal fees alone to fight a title dispute could easily exceed the cost of the insurance, not to mention potential losses if you lose the case. Given the relatively low cost compared to a home’s value, title insurance is worth the expense. Although it doesn’t improve your enjoyment of the home or add value to your property, it does protect your investment and give you peace of mind.