If this is your first time buying or selling a home, there’s a good chance you’ve never even heard of title insurance. A lot of complicated terms and conditions get thrown into the sale and transfer of a property.
It helps to know what you’re getting yourself into before you start the closing process. An important part of that is what title insurance is, and who exactly is responsible for handling that issue if it pertains to the situation.
What is Title Insurance?
Title insurance isn’t like regular insurance. With something like car insurance or health insurance, a set amount (called a premium) is paid on a recurring basis. Depending on the kind of insurance, this amount is paid either monthly or yearly.
Title insurance is only paid once, and it’s paid during the closing process of a property sale. There are no continuing fees – it’s a one and done deal.
For the most part, title insurance is a protection policy.
It protects both lenders and homeowners in the event of property damages or losses that occur due to legal circumstances. It’s not like homeowner’s insurance that protects a home that’s been damaged by a fire or a natural disaster.
It only protects against things like:
- Errors in the property title
- And encumbrances.
Like with all kinds of insurance, every kind of title insurance works a little differently.
They all have fine print regarding what they can and cannot fix.
For most homeowners, the most basic title insurance is more than enough to keep things secure. You don’t necessarily need to shop around. It’s more of a formality than anything.
Is Title Insurance Necessary?
You’re not mandated to purchase title insurance when you buy a home. Even though it isn’t an explicit requirement, a lot of homeowners like to have their bases covered. What title insurance does is protect homeowners from situations that aren’t likely, but aren’t impossible.
If anyone were to challenge your ownership of the home, your title insurance would come into play. It also protects buyers who discovered that their deeds were wrong in one way or another. This can sometimes happen when someone sells a home that was owned jointly and somehow sold without the consent of the person who held joint ownership.
This is very rare, but ownership has been challenged before. It can also fix issues regarding taxes that were misunderstood or previously unknown, as well as any encumbrances or restrictions that weren’t clearly outlined in the sale paperwork for the property.
Who is Paying Closing Costs and Title Insurance Fees?
Most of the time, the person selling the home is going to pay for the new owner’s title insurance. This is usually a show of good faith – when you pay the insurance, you’re affirming that all of the information in your deed and title is accurate to the best of your knowledge.
The buyer’s lender will also want title insurance, and the buyer is responsible for satisfying those requirements with whatever institution granted them a mortgage. These fees usually come right out of the buyer’s escrow costs. A record of the title insurance being paid will show up in the closing paperwork for the seller, and a record of the lender’s requirements being settled will go to the buyer.
Usually, the buyer pays the majority of the closing costs. There are things like escrow fees, service fees, inspection fees, and other things the mortgage lender requires of the buyer that need to be satisfied. The total amount of the fees typically won’t exceed 5% of the total sale price of the home.
Sometimes, some of the closing costs are passed off to the seller. It all depends on the circumstances of the sale. A buyer might offer a figure that takes their closing fees into account, thereby giving less profit to the seller. If the home is in bad shape, the fees for things like the inspection might be placed on the seller.
Certain parts of the closing costs are typically negotiated. Ultimately, everyone will wind up paying something. How much the seller pays versus how much the buyer pays is typically agreed upon before the closing of the sale.
How Long Does the Closing Process Take?
Closing starts once the buyer is approved for their mortgage. That alone can take a while, and some buyers will make offers that they can’t get loans for. When that happens, it doesn’t turn into a closing process.
Sellers will need to find a new buyer and start over again. Some buyers get pre-approved for a mortgage, and this makes the process a lot easier for everyone involved. Once a buyer successfully obtains lender approval, the closing process takes up to 45 days.
If everything is in order, it’s just a waiting game. Sometimes, things will come up that can delay the closing process.
This usually happens when lenders find out things they didn’t previously know about the buyer, such as substantial unpaid debts, problems with a credit report, an unreported or sudden marital status change, or the introduction of new judgements and liens placed upon either party.
These things make closing take longer to sort out. If the changes are significant, they might even stop the closing process altogether. It’s important that both the buyer and the seller are honest from the get go if everyone wants a smooth closing process.
Can I Sell My Home Without Any Closing Costs?
All cash home buyers, like home investors, want to close quickly. This means that they’re often willing to pay all of the closing costs out of pocket. They’ll prepare an offer that reflects how much they intend to spend on the property that includes all of their costs, put that much money down, and give it directly to the buyer.
This is also the quickest closing process. Some investors can close on a home in as little as seven days, so for homeowners that need a quick solution, selling your house to an investor might be the ideal solution.