If you have bought a home before, you know that title insurance is a necessary cost when closing on a Florida property. If you have not purchased a home in Florida yet then you may be wondering what you can expect at closing, what title insurance is, and how much cash you will need to have on hand.
Let’s jump right into describing this little-known insurance type, so you have a better understanding of what title insurance is, what it covers, and what it does not cover.
What Is Title Insurance?
First, let’s talk about what a title is. In real estate, a title is another term for a deed. It is the legal document that details the property you are purchasing and who owns it. Title insurance, then, is insurance meant to protect you or your lender should an issue arise with your home title.
When you are under contract for a home, a title search is run on various public records and land records. This search is done to look for any possible issues with the title or property, such as:
- The previous owner did not pay state or local taxes on the property
- There are other liens against the title
- A contractor was not paid for work they completed on the property
- There are mistakes on the deed, or something has been omitted
- The title is a forgery
- There are undisclosed owners, heirs, or conflicting wills, making it difficult to determine who has the right to sell the property
- There is information about property use or easements that the sellers did not previously disclose.
When you purchase title insurance, the team researching your title will try to uncover and remedy any potential issues.
According to Bell Alexander, up to a third of properties have some issue with their title! Thankfully, many of these can be fixed before you close on your home.
For example, if someone is selling their parents’ home but they are only co-owners, a title search would show that there are additional owners whose signatures would be needed to close the sale and transfer the title. As long as all the co-owners are on board with the sale, this can be easily fixed.
Once they have completed a thorough search, your title insurance company will then determine whether they can insure your title.
Who Needs Title Insurance?
In most cases, title insurance is required by mortgage lenders before they will originate your mortgage. However, even if you are paying cash, it is still wise to purchase title insurance should any problems arise after a thorough title search. Some issues, such as forgery, are hard to spot during the initial search process. Title insurance can help protect your rights and your investment.
Different Types of Title Insurance
There are two different types of title insurance: Owner’s Title Insurance and Lender’s Title Insurance.
The first type aims to protect homebuyers in case of issues with a title that may call ownership into question. In this case, title insurance covers the cost of your home should any additional title issues come to light later down the line. It is an optional insurance policy that must only be paid once, though you will be covered for as long as you own your home.
Lender’s Title Insurance protects a mortgage lender’s investment, requiring it before they originate a loan. Lenders always try to reduce their amount of risk, and that is precisely what title insurance does. A lender’s policy covers the amount of the loan and is reduced as you pay off the principal on your property.
Title insurance costs are generally a percentage of the purchase price and range from 0.5% to 1% on average. Bundling your insurance can lead to lower costs, which is a further incentive to purchase both a lender’s and an owner’s policy. If you are looking for a title insurance company recommendation, ask your Realtor!
What Does Title Insurance Cover?
Let’s say you have been in your home for a year when a previously undiscovered lien against your title pops up.
If you have invested in an owner’s title insurance policy, then your title insurance company will cover the costs of those liens in most cases. Similarly, if someone comes forward with a claim to your property, your insurer may help cover the court costs associated with the dispute.
If you purchase a property with a forged deed, your insurer may reimburse you the cost of the property. Your lender would also take advantage of the Lender’s title insurance policy to recoup the remainder of the mortgage they would lose out on because of the fraud.
What Title Insurance Does Not Cover
Once you have purchased a home, you are responsible for paying your property taxes on time and paying contractors who work on your home, like roofers. If you fail to make those payments, a lien may be filed against your title—and because those payments were your responsibility, your title insurance will not cover those liens.
Basically, your title insurance protects you by covering liens waged against a previous owner, in which you had no part. These are issues that may have stopped you from purchasing the home had you known about them beforehand, not issues of one’s own making.
In addition, if eminent domain is used to seize your property, there is nothing that your title insurance company can do, and they will not cover the loss of your property.
Have more questions about what it takes to purchase a home in the Tampa area? I would love to hear from you. Contact me via my website, and let’s connect.