Many first time home buyers tend to be very hopeful and enthusiastic when they can finally afford to purchase a home and start looking for one. And by all means, they have every reason to be, especially given how unpredictable and troubled today’s economy is; but this enthusiasm shouldn’t blind the prospective buyers from the necessary precautions they need to take. One of the things you should learn more about is title insurance, as it can be a very effective tool for protecting your finances in the event of taking the big step (if you purchase a home). This type of insurance protects the home’s owner from defects in title to real property, as well as from losses due to problems with mortgage loans (like invalidity or unenforceability).
Why Is Title Insurance Required?
This may not sound very serious at first, especially if you’re a very eager pair of first time home buyers, but covered problems with a property title (errors or obstacles that don’t arise until after you purchase a home) can prove to be quite disastrous in the absence of efficient title insurance. Think about it this way: if you’re uncovered in this respect, things which may come up after you make the purchase are: errors or omissions in deeds, mistakes in examining the records, undisclosed heirs (which may have the right to disown you in spite of the fact that you already paid for the home) or plain downright forgery. In all these events, you would be forced to give up your new asset and probably lose quite a lot of money in the process. But by being covered by title insurance, it means that in the unlikely but unpleasant event of a problem with the title, you would be protected against this kind of loss.
Owner’s Policy vs. Lender’s Policy
There are two main kinds of title policy: owner’s policy and lender’s policy. First time home buyers tend to be confused about the actual differences between the two, but what you really need to know is that they protect different targets. Both kinds of insurance are a form of title insurance and thus, they cover potential loss derives from problems with the title of property, but they reimburse the finances of different people while covering these losses.
Usually, when you want to purchase a home, you need a mortgage lender in order to be able to afford it. Nearly all of these lenders – and especially institutional lenders – require a lender’s form of title insurance before agreeing to enter this agreement. This way, the lender is protected against loss in the events described above, but the owner (which would be you) wouldn’t be covered as well with this form of title insurance. To be covered against your personal potential loss, an owner’s title insurance would be required, but no one will formally ask you to take one, since it’s only in your interest to get it. Our advice, of course, is to consider this type of insurance as well, in addition to the one for the lender which will most likely be mandatory. But the good news is that sometimes the premium for the owner’s title insurance can get paid by the seller instead of the buyer, depending on what terms you negotiate. Look into the matter as you browse your favorite offers to purchase a home, and good luck.