What Is Title Insurance and Why Does A Homeowner Need It?

I get it. There are so many costs with buying a home. Wouldn't it be easy to just skip out on buying title insurance? Besides, you're probably not going to need it anyway, right?

Well, unless you're a psychic, I would strongly suggest you re-think that.

What if this happened to you:

When you bought a home, the seller had both a first and second mortgage on it. Both were paid off at closing but the seller forgot to close out the second mortgage, which was a line of credit for him.

The seller continues to use that line of credit, but he doesn't pay on the loan. Guess who gets stuck with paying that honking bill?

Or, suppose one day, a woman comes knocking on your door and tells you in no uncertain terms that you're living in her house. She can prove it and you need to pack your bags.

Shocked, you tell her she's crazy, and then call your attorney.  Turns out the woman and her husband split up shortly before the house was sold. He forged her name on the deed and the sale of the home was actually invalid.

And guess what? You DO have to move.

These are just two scenarios that have happened. Needless to say, people don't always act in YOUR best interest. That's why it's important to protect the largest material investment of your life.

"But My Home Is New. Why Do I Need Title Insurance?"

That's a great question. People often think that since they are the first homeowners of a piece of real estate, they don't need title insurance.

Consider this. The builder most likely had a construction loan on the house. Those loans are often released in groups of 10 lots at a time. So it's quite possible that the bank has an interest in your new home title.

The property you're buying was master planned for multi-family use, but was not yet zoned. Previously, it had been a family farm. Someone's home place. When the title work was done, it was discovered that one of the 10 children still had 10% interest in the property.  The property had been conveyed by will to the mother's three sons.

If you don't have title insurance in this situation, it's not going to be pretty, legally.

Title insurance prevents the current property owner from suffering financial loss while he or she owns the property.

If a title claim is placed against your property, your title company will go to court for you, as long as it is one of the many "common" title insurance claims.

As a prospective homeowner, you do not have to buy homeowner title insurance. That's your right. However, your bank requires you to buy their title insurance. (These people aren't stupid. They've been at this a long time.)

The bank is going to protect their interests. They really don't care about yours. That's why you must be proactive and protect yourself!



Lilly Title & Settlement is a full service title insurance and settlement agency located in Staunton, VA.

Should You Shop Mortgage Lenders?

Unless you have a strong relationship with a banker, shopping for mortgage rates is always a good idea.

You'll own the home for many years, and you want to make sure you get the best mortgage interest rates possible.

As I discussed in my previous post on closing costs, rates vary depending on the lender and the type of house you're buying.

So just like buying a car or small appliance, you want to check around.

However, there are a few things you need to be aware of.

"No Closing Costs" Loan

You've seen them, right? They are very enticing especially if you are a first time home buyer struggling to get cash together to buy your home.

All I can say is beware. For some, it may be the entrance fee you have to pay to become a homeowner, and that's okay.  My advice is to know what you're getting into first, though.

No closing costs loans generally have higher interest rates on the cost of closing your transaction or on the mortgage loan. If you go this route, make sure you're not planning to stay in the home for a long time. Otherwise, you'll end up paying a ton of interest over the life of the loan.

When you reach the final phase of home buying, your lender must provide you with a breakdown of closing costs three days prior to closing. This is a document that is five pages in length with all the finalized terms.

The long and the short of it is this: Estimating your closing costs and budgeting accordingly goes a long way to ensure that you're looking at homes you can afford. Otherwise, you're going to spend a lot more in mortgage interest over the life of the loan than you would have paid in closing costs!

One caveat. Whatever you do, make sure you include title insurance as part of your real estate transaction. It is optional for homeowners but banks require you to pay their portion. (They aren't stupid.)

Homeowner title insurance is a one-time insurance payment that will give you peace of mind for as long as you own the home.