Buying a house is one of the most expensive and, arguably, stressful purchases one will ever make. For the first-time home buyer there are many new lessons, procedures, and processes to navigate; one of which is obtaining Title Insurance coverage for the new home. Title Insurance can be a confusing part of the home buying experience. As this is most likely the first time you ever hear the phrase Title Insurance, there can be many misconceptions that arise. This post will deal with a few of the more common ones.
I’m going to be required to pay annual premiums for my Title Insurance coverage.
Title Insurance, like any other insurance coverage, requires a premium to be paid. However, that premium is due only once and it’s paid at the time of closing. Unlike other insurance products that require annual premium payments, you only pay once for an Owner’s Policy and it protects you for the duration of your home ownership, be it one month or fifty years.
Title Insurance is expensive.
Keep in mind that you are paying for this ‘lifetime’ of coverage only once. And oftentimes, based on the amount of coverage, your premium isn’t going to be much more than your Homeowners/Hazard Insurance premium. That’s a small price to pay for coverage that provides peace of mind for the largest purchase you will ever make.
I already got my Homeowners Insurance Policy from State Farm, so I’m protected.
Homeowners Insurance and Title Insurance provide completely different types of coverage. A Homeowners Insurance Policy protects you against physical damage to your property like fire, theft, or vandalism. A Title Insurance Policy protects your ownership of your property.
There is only one type of Title Insurance.
There are two different types of policies that are available – the Owner’s Policy and the Loan Policy. The Owner’s Policy, as the name implies, protects the owner of the property against any covered title defects in your right of ownership to the property. The Loan Policy, at its most basic level, ensures that the lender has a first and priority lien on the insured property.
Title Insurance isn’t worth it, it doesn’t provide much protection.
Look, we’re all human. And as humans, we make mistakes. Even with the most meticulous and diligent searches sometimes things get missed or overlooked – a missed judgment against a prior owner, a Deed with forged signatures, a prior owner’s ex-spouse that wasn’t properly divested of their interest in the property, or just simply recording errors. These issues and claims can arise many years after your purchase…do you want to take such a risk?
My lender is requiring me to get a Loan Policy, that will protect me too.
This is not the case at all. As mentioned in the prior point, the two different types of policies provide two distinctly different types of protection. When your lender requires a Loan Policy, it will not protect you as well.
I’ll shop around for the best Title Insurance Premium.
I get it, buying a home isn’t cheap. You want to save everywhere you can. You still have to buy all the new furniture and maybe redo the kitchen. But guess what? Title Insurance Premiums are regulated by the New Jersey Department of Banking and Insurance. That means, in essence, all Title Company fees are supposed to be the same. When shopping for a Title Company you are looking to get the best customer service since all fees should be equal across all Insurers.
I’m buying a new construction property; I don’t need Title Insurance.
You may be the very first owner of this nice new home but you’re not the first owner of the land the home sits on. Oftentimes we forget that we are purchasing the land that the home is on rather than the house on it, and there may have been multiple owners of the land before us. With multiple owners comes the possibility of multiple title defects.
I’m buying with cash; I don’t need Title Insurance.
OK, maybe you cashed out your Dogecoin wallet just before it crashed. But just because you’re buying with cash and you don’t need a Loan Policy doesn’t mean you shouldn’t purchase the Owner’s Policy. It’s still the biggest purchase you’re ever going to make…depending on how early you jumped on/off the Dogecoin wagon…don’t you want to be protected?
Isn’t the Owner’s Policy optional?
The best for last. Title Insurance isn’t mandatory in the State of New Jersey. Keep in mind, however, that the lender is going to require you to obtain the Loan Policy for their protection, so doesn’t it make sense to pay the extra money to purchase the Owner’s Policy coverage as well? You’re paying for the lender’s protection, why shouldn’t you get your own?
Your home is likely the single most expensive purchase you’re going to make in your lifetime. It’s always best to go into the process with as much insight and knowledge as possible. I hope this post cleared up some of the misconceptions that surround the process.
Written by Sohail Tariq, Vice President - Providence Abstract LLC