Buying your dream home can turn into a nightmare if you don't really own the house. Your title is flawed, for example, if you buy what's actually a co-owned house and only one owner signs the deed. The seller may have other title problems even he doesn't know about. The title fees you pay when you take out a mortgage protect you against such dangers.
If your title isn't good, your lender can't be certain of getting the house if she has to foreclose. That's why lenders insist on having a title company research the chain of ownership. Investigators look for any documents that might affect your title -- not just deeds but wills, tax liens, court judgments and divorce decrees. If the relevant documents aren't all online, that takes multiple trips to multiple different county offices.
If the title company is satisfied that the chain of title is good, it offers your lender title insurance. If someone sues over the title later, the policy indemnifies the lender against losses from the lawsuit. The lender's policy doesn't protect you, so you should pay the title company for a second policy that does cover you. The premium is a one-time payment you make at closing, not a monthly or annual fee like other types of insurance.
Home sales are affected by local custom as well as state law. In some parts of the country, you pay the title company to handle the details of the closing. This may include completing the paperwork, collecting all necessary signatures, registering the deed with the local county office and delivering money and house keys to you and to the seller. The company may provide different services where you live, or the custom may be to use a real-estate attorney or broker to do the same jobs.
The differing regional customs make it hard to predict the cost of your title fees. The Federal Reserve says the insurance on a $100,000 policy ranges from $175 to $900. One reason for the variation is that in some places, the policy cost covers the title search fee as well as the insurance premium. If you think your lender's preferred title company is too expensive, you can shop around. Your lender will have to approve whoever you pick, however.
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