During your search for the perfect home, you’ve likely realized all houses are not created equal. Some are much larger than others and some have better upgrades…and bigger price tags, too! It turns out the same goes for title insurance premiums. If you’re like most home buyers, you probably haven’t put much thought into title insurance, because, well, it’s not nearly as interesting as hunting for that dream home, right? But it actually is important to carefully consider title insurance premiums, because they’re not all the same like so many assume. Before you get to this step in the home buying experience, take a look at which factors determine the cost of title insurance.
Title insurance is a one-time cost that you pay before you close on a home. So unlike most types of insurance home buyers purchase, you won’t have to pay a monthly or annual fee for your premium. And in general, you can shop around until you find a lower cost on that premium, because many factors make up the total price.
That being said, there’s one factor in the cost that you can’t really change once you’ve chosen a home, and that’s the purchase price of the house. This is because the cost of the home—and the amount of your home loan—affects the price of title insurance premiums. More specifically, your policy will likely cost about 0.5% of the purchase price, or about $1,000 on a home that costs $200,000. So if the purchase price is high, some closing costs like title insurance may be, too. The good news is that there are other factors you can control if you’re trying to reduce the cost of your title insurance premiums.
If you’re new to title insurance—which is the case for most first-time home buyers—you might not realize there are two main types of insurance to consider purchasing. One of them is lender’s title insurance, which protects the mortgage lender in case it turns out there are title defects with the home that didn’t come up during the title search. For instance, if you buy the home and get funding, only to find out there’s an unpaid lien or another type of title dispute, lender’s title insurance will protect your lender.
That’s all well and good for your lender, but what about you? Are you going to lose your investment because of some errors or omissions in the title history, or at least be on the hook for legal costs when you fight the title defects? Not if you buy the other type of title insurance premium, called owner’s title insurance. When you purchase title insurance of this kind, the policy will protect you in case there are any problems with the title that contest your ownership of the home. Note that owner’s title insurance isn’t required, but it’s recommended!
Of course, if you’re trying to save money on title insurance premiums, you might be tempted to only buy the required kind that you’ll have to show your escrow officer at closing—which is a lender’s policy. But then you’re not covered and no one else but you takes responsibility for errors relating to the title of your home. That means you could end up losing your house or a lot of money on a legal battle, because your title insurance company assumes no responsibility for the issue if you don’t have an owner’s policy.
It’s better to protect yourself and the lender by purchasing both policies. Fortunately, you can typically get a small discount when you buy them at the same time, rather than buying each one separately. This discount is called the simultaneous issue rate, so be sure to ask for it when you shop for title insurance.
Another factor that affects title insurance premiums is location. First, you’ll find that underwriters in some states simply charge less for title insurance, so a good rate for one area may be a high rate for another. After all, while most states regulate premiums, some—such as New Mexico and California—do not. This means there’s some room for negotiation on costs depending on where you live.
But there’s also the fact that it’s common for buyers to pay for title insurance premiums in some areas, while in other areas, sellers usually pay this cost. And in some states, buyers and sellers can negotiate on who pays for title insurance. So depending on the custom in your area, this could end up being a surprise closing cost during your real estate transaction. Or it could be a bill you don’t have to pay—which would be a nice surprise!
For example, on the West Coast, it’s common for the seller to pay for title insurance. On the East Coast, it’s more common for the buyer to pay for it. Of course, you can typically negotiate depending on the market. In a buyer’s market, you’re likely to get the seller to pay for many of your closing costs, including title insurance. And in a seller’s market, buyers are likely to have to pay. So it’s a good idea to ask your real estate agent for advice on this depending on how the market is.
When you buy insurance of any kind, you’ll often find there are some hidden fees in the price. If you can identify them and ask for the unnecessary ones to be removed, you may be able to save money.
Some examples of extra fees you’re paying for with your title insurance premiums may be related to document copies, courier services, document preparation and recording, notary services, and more. You can ask for a breakdown of the costs you’re being charged for. If it turns out some don’t apply to you because you didn’t use those services, you can consider asking for the fees to be removed so you can save money.
As you compare title insurance premiums, keep in mind that the services offered by each title company may vary widely. So you might get two very different price estimates, but make sure they both offer the same services before you merely choose the less expensive one. You might find the extra services are worth the money, or you might decide this is somewhere you want to save your money and stick with the basics.
For example, you can typically choose between a standard policy and an extended one. The standard title insurance policy usually covers issues like forgery, impersonation, undisclosed liens, undisclosed easements, or improperly recorded deeds. But if you want even more protection, you might consider an extended policy that covers off-record liens, pre-existing violations of zoning laws or HOA rules, incorrect surveys, and more. You can always ask for an explanation of each service before you decide which policy is right for you.
If you have any questions about title insurance premiums, your real estate agent will be happy to provide answers or guidance on how you can save money while getting the coverage you need. If you need help finding a real estate agent you can trust, let LemonBrew match you with a Partner Agent to get started on your home search. And if you’re at the point in the home buying process where you need to buy title insurance, LemonBrew Abstract has what you need, so come to us for title insurance, closing services, and more!