Homebuyers should carefully consider their future plans for the property
When someone buys a home, they’re typically required to purchase lender’s title insurance to protect the interest of the financial institution that holds the mortgage loan. If any problems should arise with the title to the property, lender’s title insurance will protect the lender until the buyer pays the full amount on the loan.
Owner’s title insurance is a different matter. Owner’s title insurance protects the buyer’s interests, not the interests of the lender. It can provide buyers the confidence of knowing the title to their property is clear of defects which could otherwise affect their ability to own and enjoy their purchase the way they want. Those title defects could include liens against the property for past taxes or assessments that have gone unpaid by previous owners, forgeries of deeds, fraud and even mistakes in public records.
Some owner’s title insurance will provide additional coverage, such as protection from building permit issues, some structural damage and survey disputes. And sometimes it will also protect owners in cases where a lender is sued for a title problem — potentially covering loss of their down payment, equity or improvements to the property and expenses related to the legal action. But how much owner’s title insurance does a buyer need to sufficiently protect themselves? The answer may depend on their future plans for the property.
Amount of title insurance depends on several factors
How much one pays for title insurance for the lender’s policy depends on their location and the individual policy. How much one pays for owner’s title insurance, however, depends on the price of the home. In total, title insurance can cost thousands of dollars but just a small fraction of the value of the property.
Property owners also have the opportunity to purchase a policy above the amount they’re paying for the property. It is important to note that in most states, purchasing title insurance to cover less than the price paid for the property is typically prohibited. Here are a few factors to consider when deciding how much title insurance to purchase.
- Is the property purchase occurring when houses for sale are aplenty? If so, and if the owner believes the property will appreciate considerably before it’s sold again, they may want to take out a policy over the original purchase price. Sometimes title insurance may be purchased for up to 50 percent over the current property value. This option isn’t always available, but a representative from River Valley Title Group will know.
- Does the owner plan to immediately make major improvements to the property? Typically, one can purchase a policy that covers those anticipated improvements as well as the purchase price for the property. If taking out a loan from the same lender for the improvements, typically that full amount would be included in the lender’s title insurance policy.
- Was the property inherited or was it part of a divorce settlement? To make sure the property is properly vested in the owner, additional insurance may be needed. This typically requires an appraisal and issuance of a new policy.
Amount of title insurance needed varies
The amount of title insurance needed to protect an investment varies, and clearly there are many factors to consider. Other elements can also have an impact on the amount of title insurance needed, including different types of mortgages, construction loans and more. If you have questions about how much title insurance your client should get for their property purchase, discuss it with the trusted professionals at River Valley Title Group.