When dealing in real estate, a very important thing to consider is the title insurance. It is a policy of indemnity that protects the owner’s right to ownership of the property.
A rough estimate by most experts in the industry states the cost of title insurance at around 0.5% of the cost of the property. However, these policies can be tailored as per the applicant’s requirements. In case of a long-term agreement, this policy tends to have an increasing premium of about 10% on the initial premium, after 5 years of its issuance.
About the Policy
Title insurance, as mentioned above, is a policy and a provision of indemnity that protects the insured person, or the owner of the property, from certain financial risks. However, this policy only covers risks in context with the title of the property. There can be multiple meanings to this context in different situations.
- The first one being the most prominent one, ownership.
- The second one is more complicated, and is known as a ‘lien’. It is a term used for a person who has the right to take over a pledged collateral, or a property, in case of default on a loan. It is generally used for creditors, bankers, and lenders.
- The third one is quite generic, and means a right to ownership, which is quite a broad term.
This policy covers the financial expenditures that arise from the period before the policy was issued, and extends until all the mortgage installments are paid. In some cases, the time period differs as per the requirements of the insured. Also, there is a certain coverage limit beyond which the policy does not provide any compensation.
Why is it Necessary?
Most mortgage lenders require you to get this policy in order to apply for any kind of financing, like real estate, home, or mortgage loans. This is because, it helps pay for all legal proceedings, and also helps against claims made by previous owners or lenders of the property. This policy is highly recommended if you are borrowing from a private lender, or, if the property has been a subject of foreclosure, short sale, bankruptcy, lease issues, or any other such event.
Cost and Types
There are three types of title insurance policies that are in existence, the price of such policies and their said premiums always differ from one another. Thus, the cost also differs as per the case.
- The owner’s title insurance: This is the most common policy that is applied for by property owners across the United States, and it is also quite cheap. Its cost is equivalent to about 0.5% of the property’s equity, and is equally divided into premiums on an annual or monthly basis. This policy only covers the owner of the house, and any other lender or creditor does not benefit from this plan.
- The lender’s or creditor’s title insurance: This policy is provided to the lender who is only interested in protecting his right as a lien to the property. Its cost depends upon the lender. Often, the insurer tends to cover several properties in a comprehensive policy for the lender.
- The builder’s insurance: This policy covers any losses and claims that are made during the construction period, or until the property is sold off/transferred.