How Much Does Title Insurance Cost, and Do I Need It?

Who pays for title insurance?

Who pays for title insurance can vary depending on the state, local customs, and what’s written into the home’s purchase agreement. In many states, the buyer pays these one-time fees as part of their mortgage loan costs at closing. In other states, like Arizona, it’s customary for the seller to pay for title insurance.

In some cases, the seller will pay for the owner’s title insurance policy as a gesture of good faith, ensuring that the buyer receives clear title to the property. Negotiations during the sales transaction can also influence who pays for title insurance, with some buyers and sellers agreeing to split the cost.

What does title insurance cover?

Title insurance plays a key role in the homebuying process by providing financial protection against a myriad of potential legal and financial issues that can arise regarding the property’s title. It covers:

• Property ownership disputes
• Property encroachments or easements
• Liens from outstanding debts
• Erroneous or improperly recorded deeds
• Conflicting wills or inheritance rights
• False or forged documents

Title insurance protection example

Imagine you’ve recently purchased a home, and a few months later, a third party claims they have an easement agreement with the previous owner, allowing them to use part of your backyard for access to their property. Upon investigation, it’s discovered that this easement was never officially recorded, but the third party has been using the pathway for years and may have even altered the landscape.

Title insurance would step in to address the legal costs of resolving this dispute and, depending on the policy’s terms, compensate for the loss of property value or negotiate a resolution that keeps your property rights intact.

Am I required to get title insurance?

While title insurance is not legally required for the homeowner, it is strongly recommended. Most lenders, however, will require you to purchase a lender’s title insurance policy as a condition of your mortgage. This policy protects the lender’s investment in your property. Owner’s title insurance, though not mandatory, is advisable as it protects your equity in the property. Without it, you could be financially responsible for any legal battles over the title, which could be costly.

How much does title insurance cost?

Title insurance rates vary widely depending on the value of the property, the state where the property is located, and the insurance company. The cost to purchase your lender’s title insurance will typically range from 0.5% to 1% of your home’s purchase price. So, if you are buying a $400,000 house, you can expert to pay $2,000 to $4,000 for the lender title insurance. (Or this is the price the seller might pay if you live in a state where the expense falls on the seller.)

The separate cost of the owner’s title insurance can range from a few hundred to a couple of thousand dollars. Here again, the home’s location and price play a role. For example, one equation to estimate an owner’s title insurance cost is $250 for every $100,000 of the home’s purchase price. On a $400,000 house, that works out to $1,000. On a $900,000 house, you might pay $2,250.

In some states like Florida, Texas, and New Mexico, underwriters are required to charge a set amount for the title insurance. In other states, like Arkansas, Georgia, Illinois, and Indiana, title insurance rates are not regulated, which means you can shop around for an insurer with better rates.

Unlike other types of insurance that require ongoing premiums, title insurance is typically paid through a one-time premium and generally gets rolled into your closing costs.

Where do I buy title insurance?

Title insurance can be purchased through a title company or a title insurance agent. The provider will conduct the title search, issue the insurance policy, and, in some cases, also handle the closing process for the property purchase. Your real estate agent, mortgage lender, or real estate attorney can provide recommendations for reputable title companies or agents.

It’s important to choose a company or agent with a strong track record and who is fully licensed in your state. Many companies provide online title insurance calculators that allow you to input your property and location information for a free estimate.

Additionally, as noted above, some states allow you to shop around for title insurance, while others have more regulated markets, which might limit your choices or affect the pricing.

Are there ways to reduce title insurance costs?

There are several strategies to potentially reduce the cost of title insurance:

• Shop around: In states where prices aren’t tightly regulated, compare quotes from several title insurance companies.
• Ask for a reissue rate: If the property was insured within the last few years, or you’re refinancing, you might qualify for a reissue rate, which can be significantly lower than the cost of a new policy.
• Negotiate the seller to pay: Depending on local customs and market conditions, you might negotiate for the seller to pay for your owner’s title insurance policy as part of the purchase agreement.
• Bundled discounts: If you purchase both the lender’s and owner’s policies from the same company, you might be eligible for a discount.

What is a ‘title search’ when buying a house?

A title search is an examination of public records to determine and confirm a property’s legal ownership and find out if there are any claims or liens against the property. This search is typically conducted by the title company during the homebuying process before the title insurance is issued.

The purpose of the title search is to ensure that the seller has the right to sell the property and that there are no encumbrances or liens that would hinder your rights as a new owner. If issues are found, they need to be resolved before the property transaction can proceed.

A top agent can guide you through every step

Buying a home can be both exciting and exhausting. From title insurance rules and disclosure laws to home inspection reports, it can be a lot to process. You don’t have to do it alone.

HomeLight can connect you with a top-rated agent in your buying market who will guide you through every step of the homebuying journey. From recommending reputable title insurance providers to negotiating the best terms, a skilled agent can protect your interests and provide peace of mind.

Header Image Source: (Ernest_Roy/Pixabay)