Title Insurance
Title insurance is one of those annoying obligations in the real estate market that just have to be taken care of. Essentially, it’s a form of insurance that protects the mortgage lender against any problems with the title of the purchased property.
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If it turns out after a sale that the previous owner didn’t legally own the title (perhaps because there was an uncaught error in the title transfer from the owner before that), title insurance will allow the lender to recover a payment equal to the value of the mortgage. It will also pay for any legal action necessary to sort out the mess. The vast majority of mortgage lenders will insist that the borrower take out a title insurance policy before they will approve any mortgage loan.
However, many borrowers wonder why they should be responsible for the cost of title insurance if it only protects the interests of the lender. Shouldn’t the lender pay the premium? Well, no. In truth, title insurance actually affords the homeowner a not inconsiderable measure of protection, too.
The owner’s policy actually insures that the title to a property is free from defects. The policy will cover any loss or damages incurred in the case that the title is unmarketable (for instance, if it turns out that a third party has an interest in the property). Basically, it ensures that the homeowner will not lose out financially if there are any problems with the title.
So, even if your lender is willing to offer a home loan without the need for title insurance, it would be highly advisable to take out a policy anyway. After all, nothing would spoil the feeling you get with that wonderful new house smell than a previous owner showing up on the doorstep insisting that the house belongs to him. Despite the cost, it just ain’t worth skimping on this one.
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