You don’t really understand the value of title insurance until you’re in the thick of the home-buying process. Title insurance will make sure you and your lender will be protected in the event that the seller or previous owners didn’t have absolute ownership of the house. (It sounds crazy, but sometimes it turns out that the owner is not the only one with rights to a home!) So how much does title insurance cost for home buyers? The average cost of title insurance is around $1,000 per policy, but that amount varies widely from state to state and depends on the price of your home.
Let’s examine the ins and outs of title insurance, why home buyers need it, how much you can expect to pay, and (most important) how you can save on a title insurance policy.
What is title insurance?
Holding a title insurance policy means you and your mortgage lender are protected against any financial loss or title issues due to liens, disputes between prior owners over wills, clerical problems in courthouse documents, or fraudulent claims against the property or forged signatures.
A title search will be performed by your title or settlement company to uncover any issues with your title that could give you legal troubles down the line.
The title company then insures your claim to the property’s title. If anything is missed during the search or there are lawsuits questioning your legal ownership of the property after closing, your title insurance policy will cover the costs of resolving the problem.
Lender’s title insurance vs. owner’s title insurance
There are two types of title insurance: lender’s and owner’s. Almost every lender will require you to pay for a lender’s title insurance policy. This protects the lender—not you—from incurring any costs if a title dispute pops up after closing.
Owner’s title insurance is usually optional, but it’s highly recommended. Without it, you’ll be left footing the bill for all the costs of resolving a title claim, which could be thousands or even hundreds of thousands of dollars. Even though it can feel like you’re hemorrhaging cash when you’re closing on a house, a title insurance policy is one of those things that can save you money in the long run.
“When you consider the benefits of title insurance and some of the unique aspects of title insurance relative to other kinds of insurance, it is clear why it’s risky and ill-advised to purchase real estate without a title insurance policy,” says Brian Tormey of TitleVest in New York Cuty.
How much does title insurance cost?
Title insurance premiums can vary from a couple of hundred dollars to a couple of thousand dollars. Some factors that can affect the cost of your premium include the title search, examination, and expected cost of any title defects. The average cost of title insurance is $1,000 per policy, but that amount varies widely from state to state and depends on the price of your home. A one-time payment is made when or before you close on your house.
“In general, each policy price is based on the purchase amount of the home or the total amount of the loan,” explains Tormey. “Title insurance is a highly regulated industry, so title insurance policy types and costs will vary from state to state. Each state’s Department of Insurance can provide information on the pricing regulations in their state.”
In some states such as Texas and Florida, title insurance premiums are fixed by the government, so you will pay exactly the same amount no matter what. Other states such as California and New Mexico have unfixed premiums, which means that buyers can shop around. Iowa actually underwrites the insurance itself, resulting in the lowest premiums in the country: $110 for properties costing up to $500,000. Here’s a calculator that can help you figure out the cost for your area and purchase price.
How to save on title insurance
Even in states with highly regulated title insurance industries, there are ways to save. Here are some ways to lower your costs.
- Shop around. If premiums are unregulated in your state, find the company that offers the best deals. Just make sure you’re not sacrificing customer service to save a few dollars: Resolving a title issue can be stressful, and you want a company that will help you through the process. Read reviews and talk to your real estate agent for recommendations.
- Bundle. Some companies will offer a discount if you bundle your lender’s and owner’s policies.
- Negotiate add-ons. Even if the premium itself is fixed, there are almost always other fees built into your total premium price. See if there is any wiggle room with those items. They may be optional, or the insurance company might be open to discounting them.
- Negotiate with the seller. Closing costs are always open to negotiation, and picking up the tab for the title insurance might be worth it to a seller who’s highly motivated to close the deal. But be wary of using this tactic in a competitive market.
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