When you buy a home, you have different types of protection you must buy. You are probably familiar with homeowner’s insurance and maybe even flood insurance. But, did you know that you must also buy title insurance?
Did you also know that just like shopping for homeowner’s insurance, you can shop around for a title company as well?
Shopping for a Title Company
In most cases, you can choose your own title company. Most borrowers just accept whichever company the mortgage company tells them to use, though. It could be due to the nature of the insurance – many borrowers don’t understand it. Others let the mortgage company dictate which company they use out of convenience. There are certain benefits of shopping for your own company, though.
The Benefits of Shopping for Your Own Title Company
Shopping for your own title company may provide you with the following benefits:
- You can ask about the fees they charge and what services they cover. You may even be able to cherry-pick the services you need, therefore reducing your fees.
- You can shop for the lowest/best premium on your owner’s insurance policy, should you choose to buy one.
- You can negotiate the fees and ask for discounts. For example, if you do buy an owner’s policy (it’s optional), you may get a bundled discount if you buy it from the same insurer providing the lender’s policy.
- You can ask questions directly to the agent, making sure you fully understand the policy and what it costs.
What is Title Insurance?
Now, you might wonder why you even need title insurance. First, know that the lender’s policy is required. If you borrow money to buy a home, you have to pay for title insurance. This protects the lender should anyone try to stake a claim on the property. A few examples of defects in the title include:
- Liens that went undiscovered during the title search
- Mistakes on previous deeds
Title insurance is a retroactive policy. In other words, it protects the lender (and owner if applicable) from events that occurred before you took ownership of the property. Again, unlike other insurance policies, you only pay the premium one time and keep it for the life of the loan. An owner’s policy, however, lasts for the entire time that you own the home, not just the time that you hold the loan.
How Much Insurance do Lenders Require?
Typically, lenders require you to purchase a lender’s policy equal to the amount of the loan. You pay the premium, but the policy is written in the lender’s name. The policy remains active as long as you hold the loan. If you sell the home or even refinance the loan, the policy becomes ineffective. You will have to pay another premium for a new policy if you refinance.
Unlike the lender’s policy, there aren’t any requirements regarding how much insurance owners must carry. In fact, you don’t have to purchase it. If you choose to do so, you may negotiate with the seller to have them pay for it. Some sellers will pay for it and some won’t. Because it’s a policy that guarantees there aren’t any defects in the title, it makes sense that you at least try to negotiate the cost with the seller.
Handling the Closing
The title company also assists with the closing. They are the ‘closing agent,’ which means more costs. It also means that they control how the process goes. Using the company that the lender chooses leaves you at the mercy of that company’s policies and procedures.
If you shop around for a closing agent, you can negotiate the costs as well as determine their quality of service. Because many lenders have relationships with certain title companies, you may be highly encouraged to use the company they use most often. But, it is your right to shop around if you choose to do so.
Talk with your lender about the possibility of choosing your own title company if you want control over the fees you pay for title insurance and even the closing. Some lenders allow it, while others do not. Because you have the right to shop around for a mortgage, though, you can keep shopping until you find a lender that will allow you to choose from the available title companies in the area.Click to See the Latest Mortgage Rates»