When you buy a home, the amount that you pay at closing doesn’t just reflect the value of the home. You typically have to cover other costs as well, including the cost of signing your document, the fees assessed by the real estate agents and other necessary charges, like appraisal fees and title insurance.
Considering that you already have to have homeowner’s insurance for a financed property, you may not understand why you also need to have title insurance as part of a real estate purchase. If you look closely, you may realize that you have to purchase not just one but two separate title insurance policies. What do those policies do, and who has protection under those policies?
Title insurance protects your investment in the property
Title insurance helps protect you and the financial institutions involved in the purchase of your home from financial losses if someone else shows up with a credible claim to the property’s title. An heir whom the executor of an estate didn’t find or a spouse who didn’t approve of a sale are both examples of someone who might have a claim to the property even after you purchase it.
The title insurance you pay for will protect both you and the lender. The lender’s policy reimburses them for the value of the mortgage if you lose the property and no longer pay the mortgage.
Your policy as the homeowner protects the money you have invested in the home, including the equity you’ve accrued. Title insurance may cover the cost of having an attorney defend your ownership of the home, and it can reimburse you if the courts rule in favor of the other party so that you don’t lose the money you’ve invested in your home.