Your home will probably be one of the largest expenses you have in your lifetime. Most people utilize a mortgage loan to finance the purchase; however, if you are disciplined enough to save money and pay cash for a house, there are benefits — such as saving money on interest and holding a free and clear title to your property. If you pay cash for a house, the title will reflect that there isn't an underlying mortgage loan on the property.
Defining Property Title
The terms "title" and "deed" are often used interchangeably or confused with one another. While both titles and deeds are associated with real estate transactions, they aren't the same thing. The title to the property is not a legal document. It's actually a summarized report containing the history of the property and house. An abstractor prepares the title based on a title search completed by researching the recorded documents related to a specific parcel of property.
Understanding Title Information
The abstractor reviews the information he finds on the property. Recorded documents are generally deeds, security instruments (mortgages or deeds of trust), satisfactions and miscellaneous liens from third parties. These are placed in chronological order to create a chain of title.
For example, the chain will show when the property was purchased, what the mortgage loan was for, when the mortgage was paid off, when the property was sold and who the new owners are. The dates and recording information — the book and page or document number where the document is filed — for each transaction is also listed. The title report also shows how the title is held, or the vesting. There are multiple ways to hold title including individually or jointly with someone else such as a spouse.
The Function of a Deed
Deeds are legal documents. They act to transfer property ownership between two parties. The seller of the property signs a deed — usually a warranty deed — granting his interest in the property to you, the buyer. This document is what actually gives you ownership rights to the property.
Once the deed has been filed on record, you get the original back. The deed includes the seller's name, the buyer's name and a complete description of the property. The seller must sign and in most cases a notary public witnesses the signature. Many states have other requirements that must be on a deed, such as the name of the person who prepared the document.
Obtaining a Clear Title
When you buy a house with cash, you will get the deed and not a title as physical documentation. If a title search is completed on the property after the sale is finalized, it will show that you're the current owner and you took ownership through a deed dated on the specific date, for the amount of money you paid the seller, recorded in a certain book and page of the county clerk/recorder.
It will also show that there is no mortgage loan on the property. As long as there are no other miscellaneous liens, such as a tax lien, the title is considered free and clear. You own the property outright, and it is not being leveraged as collateral for any debts.
