What Is Title Insurance and Why Do I Need It?

To answer this question, we must first ask: what is title?

Title is simply who owns a property. A person whose name is on title has ownership rights to a property.

A person on title may be different than those on the loan document (those who are paying for it). This difference may occur in the case of married couples, when one spouse earns the entire income for the family, but they both have ownership rights to the property.

So, what does title insurance have to do with any of this? Title insurance is designed to protect you and your lender from third-party claims toward ownership of the property.

What are third-party claims? If you’re buying a house from someone who was sued while he or she owned it, the party suing the owner is making a third-party claim.

A common example is a contractor who wasn’t paid by the owner. If that contractor were to put a claim against the property, and you were to find out about it after you took ownership, you could potentially be involved in a lengthy and expensive legal process.

This is where your title insurance comes into play. The title insurance company researches the title of a home before your lender will agree to lend money on it and before you close on the home. This research includes court records and other sources. Then, if a situation like the one above comes up, your title insurance will bear the brunt of addressing it.

There are, in fact, two types of title insurance policies. The first is the Lender’s Policy. This is to protect your lender up to the loan amount. This policy is required in many states.

The other policy, an Owner’s Policy, can cover up to the purchase price of the property. For more details on this important coverage, contact your mortgage professional.