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What Is Title Insurance? Peace of Mind When Buying a Home

September 4, 2020

Title Insurance Filing

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Buying a home often entails also buying various types of insurance to protect your property, and one type you might need to get is called title insurance.

So what is title insurance? When you buy a home, you “take title” to it and establish legal ownership. A title insurance policy protects you against the possibility that someone else might have a claim on your home.

If you need a mortgage to buy real estate, your lender will likely require you to buy a title policy from a title insurance company. Although it’s a cost home buyers incur, getting a title policy from a title insurance company is critical to establishing peace of mind.

Here’s more about how a title company works, why a title search is required for a mortgage, and more that home buyers should know.

Why a title search is required with a mortgage

When getting a mortgage to buy real estate, you’ll find that most lenders will typically require that you get a title search before you close the deal with your escrow company. Basically this would mean you’ll have to hire a title company to search local records on your property. Some of the issues they’re looking for include the following:

  • Disputes between prior owners over wills: If your property was inherited and then sold by the heirs, there could be other heirs contesting the will and claiming ownership of your property.
  • Liens for unpaid property taxes.
  • Liens for contractors who worked on the home but were never paid.
  • Clerical problems in courthouse documents: Believe it or not, a simple typo can lead to title claim problems.
  • Fraudulent claims against the property or forged signatures: For example, if a group of heirs can’t get a holdout to agree to sell the home, it’s possible that someone will forge a signature on a quit claim deed.

While most homeowners will never need to use their title insurance, its existence offers protection against a potentially aggravating—and very expensive—financial loss.

Lender’s title insurance vs owner’s title insurance: What’s the difference

When getting a mortgage, the home buyer pays their lender’s title insurance premium. But keep in mind that this policy will only insure the lender in the case of a claim against the title. The lender’s title insurance policy pays for the expense of the insurer researching a claim and any court costs incurred due to the dispute.

In addition to offering a policy to the mortgage lender, a title company will offer the home buyer their own insurance, called owner’s title insurance. In many states, owner’s insurance is optional. In most areas, it’s common for buyers to purchase owner’s title insurance, but in some areas it’s more common for the seller to buy the policy.

Owner’s title insurance is recommended, because lender’s insurance won’t protect you personally if the insurance company loses a battle over legal title. You’d be required to pay for the continued fight over the title and could lose your investment in the property.

You can purchase basic or enhanced owner’s title insurance, with the enhanced insurance policy offering more coverage for things like mechanic’s liens or boundary disputes.

While your title insurance covers you for things such as mistakes in the legal description of your property or human error, be aware that it will have some exclusions—particularly in cases where violations of building codes occur after you bought your home.

How much does title insurance cost?

The average cost of title insurance is about $1,000 per policy. However, that amount varies widely based on the price of your home, where you live, and any potential issues that crop up during your title search (here’s more on how much title insurance costs).

Unlike other types of insurance, a title insurance policy is paid with a single premium during escrow while closing for your mortgage. If you’re buying a real estate resale or refinancing, you may be eligible for a “reissue” rate, which could offer a substantial discount off the regular premium—because the title policy is already in effect, and the title research has already been completed.

In some states, title insurance premiums are the same no matter who you work with, but in the majority of states, you can save money by shopping around.

Get recommendations on title companies from real estate agents, lenders and friends, and be sure to check out the license and reputation of different title companies online. Always compare the features of each policy and get adequately covered for the real estate you’re purchasing.

The post What Is Title Insurance? Peace of Mind When Buying a Home appeared first on Real Estate News & Insights | realtor.com®.

Mortgage Broker vs. Bank: Which Is Better for Buying a Home?

September 24, 2019

When you’re looking for a mortgage, to either buy a home or refinance one, you can use a mortgage broker or deal directly with the bank.

Using a broker to get a home loan instead of going directly through a bank loan officer or other mortgage lender has its pros and cons. Depending on your needs and situation, you’ll have to decide which is right for you.

Going it alone

If you go it alone, you deal with the bank directly. If you’re a regular customer and have a great relationship with your local bank or community bank, for example, you might receive better terms and interest rates. A local mortgage lender may work with you, especially if you already have accounts with the financial institution.

If you don’t have a good working relationship with a particular mortgage bank, you should shop around for a home loan. Even if you do have a mortgage lender you’ve worked with, you should consider shopping around anyway—don’t assume your bank is automatically giving you the best deal.

Keep in mind that when you’re on your own, comparing mortgage rates and terms for home loans from different lenders can be time-consuming and complicated. Some borrowers may not know how to compare mortgage products correctly or be savvy enough to slice through all the lender’s financial jargon.

Each mortgage lender typically offers just a few mortgage options, so in order to find the best mortgage rates and other terms, borrowers have to talk to loan officers at each bank and lender.

Pros of using a mortgage broker

Brokers are mortgage experts. They know the market, follow trends, and know which banks and other institutions offer which mortgages products. They’ll also know which lenders are offering discounts or deals on home loans.

More importantly, mortgage brokers can save borrowers time getting a mortgage loan. A smart broker can identify the most appropriate lender for your specific circumstances and know which mortgages will be most appropriate. Mortgage brokers also handle the hassle of paperwork and interaction with lenders, which can help relieve stress from the loan process.

This saving of time, work, and stress is a big factor for many individuals who use a mortgage broker. Some brokers develop personal and professional relationships with lenders, which may accelerate the application process.

You can meet with a local mortgage broker face to face, in his brick-and-mortar office, and get your questions answered. That may be more reassuring than talking to a different person every time you contact an online lender.

However, these relationships between broker and mortgage company aren’t always a good thing.

Cons of using a mortgage broker

You may want to consider these things before you decide to use a broker instead of a local bank, direct online lender, or other loan program:

  • Mortgage brokers aren’t free. Mortgage broker fees typically range from 1% to 2% of the mortgage. You also need to consider who pays the broker’s fee. While many mortgage brokers receive payment from the lender, some charge sizable fees to the borrower for arranging the loan, which you pay as a closing cost. This is especially true if your mortgage application involves credit issues or other financial hurdles, including those common to first-time buyers or home buyers looking for a low or high loan amount.
  • A bad broker can favor lenders, not you. The deep relationships that some mortgage brokers develop with particular lenders can work against you. For example, a mortgage broker might steer you toward a loan officer or financial institution with whom he has a long history—and not the lender that offers the best terms. Likewise, if a broker is more concerned with netting the highest commission, he might steer you to one lender, instead of the lender best for you.
  • They’re not all created equal. Mortgage brokers aren’t equally skilled and knowledgeable about loans. Some brokers may not know of all the loan deals and options, which means you won’t get the best loan deal out there. To find the best broker in your area, ask around. People who have recently gotten loans and your real estate agent may be able to steer you toward a mortgage broker who can get you better interest rates and other terms on your mortgage loan.

Updated from an earlier version by Moshe Pollock.

The post Mortgage Broker vs. Bank: Which Is Better for Buying a Home? appeared first on Real Estate News & Insights | realtor.com®.