Purchasing a home is an exciting time in a person’s life, but the transfer of ownership of a piece of property isn’t as simple as walking down to the store and buying yourself a donut. There are legal rights that must be transferred, and large sums of money typically change hands.
Just like your home security system protects you from intruders, you’ll want to protect yourself during this major transaction. That’s where title insurance comes in. Think of it this way — title insurance is home security when you’re purchasing a house.
But how does it work, exactly? Title insurance is a type of retroactive policy that protects homebuyers from any issues that might pop up regarding their legal claim of ownership for their home. There are myriad problems that can occur in establishing the legal chain of transitions of ownership for a property, and this particular type of insurance protects buyers from being left with the bill.
FYI: One thing title insurance can’t protect you from is damage to your property. For that coverage, you’ll need a good homeowners insurance policy. Check out our home insurance buyers guide for more information.
But before we talk about the ins and outs of title insurance and how you can save some serious money on it, let’s answer one crucial question — what exactly is a title, and how does that differ from your deed?
House Title vs. Deed
There are a lot of complexities that come with owning a property, and when you close, you’re going to hear a lot of unfamiliar terms kicked around. It can all be a little confusing.
One of the first confusing things many people face is understanding the difference between a title and a deed. Luckily, we’re here to demystify everything.
- A deed is the physical document that passes ownership rights from a seller to a buyer. This document is usually recorded with the courthouse or the assessor’s office.
- A title, on the other hand, isn’t a document at all. It’s the term for a concept that describes someone’s right to the legal use and ownership of a property, including your right to sell it.1 If you do decide to sell the property to another person, it must “clear title,” meaning that there can be no known claims to or liens on the property — often called encumbrances.
So your title and your deed are related in terms of establishing the ownership of a property, but one is physical and the other is abstract. Confused? We’ll explain.
What Exactly Is a Title?
While it might sound like it should be a physical document you could stick in your filing cabinet, the title is really a bundle of rights you assert when you take possession of the property. There are five of these that you will share with your lender:2
- The right of possession. This means simply that you claim ownership to the physical structures as well as the property included in the sale.
- The right of control. As the owner, you can use the property as you see fit, so long as you’re not breaking any laws.
- The right to exclusion. If you don’t want someone on the property, you can give ‘em the boot.
- The right to enjoyment. Similar to the right of control, this allows you to use the property for your enjoyment. Throw a party. Play with your kids on the lawn. Do whatever you want as long as it’s legal.
- The right to disposition. If you would like to sell the property — and you have the right to transfer title — you have the right to do so.
So now that you know what a title is, specifically, let’s talk about why these concepts are important.
Why Is a Title So Important?
When a property is sold, a title company will analyze public records to make sure that the chain of title is clear. This means that the seller can legally sell the property and the buyer can legally purchase it and receive ownership.
That might sound pretty straightforward, and in most cases it is. However, when establishing a chain of title, sometimes problems can arise that will prevent title transfer. These can include public record errors, unknown liens, fraud, forgery, missing heirs, and disputes over property boundaries.
FYI: Fraud is a major problem in real estate, and can extend beyond your property. To learn more about ways to protect yourself, check out our identity theft protection buyers guide. Here’s a hint: You don’t want to deal with title fraud.
Let’s say you’ve recently purchased a home. You’re moving in, setting it up — and everything is great. Then you get a knock on the door. Decades ago, someone long-deceased willed the property to their out-of-state son, and now he’s coming to establish ownership. If this individual can prove legal and rightful ownership, you might end up losing the house.
Now that’s an extreme example, but it illustrates the importance of title insurance, which we explore below.
What Is Title Insurance?
Title insurance protects you and the financial institution issuing your loan from any unexpected issues related to the title rights during and after the sale. There are two types of title insurance to be aware of.
- Owner’s title insurance. These policies are purchased as a guarantee against hazards, including outstanding lawsuits, liens, flawed records, forgeries, and conflicting ownership claims. Owner’s policies are sometimes optional, but they might be required by the closing agent or the lender.
- Lender’s title insurance. Borrowers will always be required to purchase this type of policy before their loan is obtained, and they are often issued by the title company after the title search has concluded. These policies protect the lender (not you) against potential losses and are nonnegotiable.
So now that you know what a title is exactly and how title insurance can protect you, let’s talk about the all-important question when purchasing a home — how much is this going to cost?
How Much Does Title Insurance Cost, and How Can You Save?
Depending on the provider and the state in which you live, one-time title insurance premiums can range from $500 to $3,500. Although this is often rolled into the closing costs of the home purchase, that doesn’t mean that you don’t want to do everything you can to save a bit of cash. Moving is expensive, after all.
Depending on the state you live in and how rigid insurance regulations are, you might not have a lot of wiggle room. In some states, like Florida and Texas, premiums are set by the state government, so they cost what they cost for your property. In other states, though, like New Mexico and California, premiums aren’t fixed so you should shop around.3
Pro Tip: If you’re moving in Florida, you’re going to want to take a look at our roundup of the best homeowners insurance providers in Florida. The Sunshine State is a special place with a lot of special insurance requirements!
Another way to save is by requesting to bundle the lender’s and owner’s policies. Sometimes called the “simultaneous issue rate,” this package of policies will usually help buyers save. While you’re doing this, you should also ask to negotiate the fees associated with underwriting the policy. Sometimes you can get a discount just by asking for one.
The final way to save money on title insurance is by asking the seller to pay for the policy. In buyer’s markets, sellers are often looking for ways to sweeten the deal, and it has become a more common request at the negotiating table. Remember, we’re not talking about huge sums of money here, so the seller might say yes without a second thought.
So now that we know how much you’re going to pay and how to potentially avoid the cost, let’s talk about another term you might hear about: warranty of title.
Warranty of Title vs. Title Insurance
Again with the confusing jargon! Don’t fear, though, we’re going to clear everything up, and you won’t even need to take a real estate law class.
A warranty of title — sometimes referred to as a warranty deed — does not protect the buyer in any way. It does provide a way for the seller to contractually affirm they are the owner of the property and as such, have the legal right to sell it. When a warranty of title is issued, it means the buyer could seek legal recourse against the seller if disputes arise.
FYI: Another major factor in purchasing your new home will be securing a great homeowners insurance policy. If you’re not sure where to start, head over to our roundup of the top home insurance providers of 2023.
Warranty of titles aren’t always required as part of a property’s closing, but sometimes they are required by closing agents or lenders. As always, if you don’t know, ask.
At the end of the day, both title insurance and warranty deeds help facilitate the sale of real estate and bolster the confidence of the parties involved. And with that said, let’s bring it all home.
Title Insurance: The Final Word
There are thousands of things to consider when purchasing a house, but title insurance should be high up on that list. While it’s likely that owner’s title insurance is included in some form or fashion, every transaction is unique, so you should ask questions to clarify.
Ask specifically if owner’s title insurance is included in the sale, how much it will cost, and who is responsible for paying for it. If it’s not included, you probably want to raise a flag with the closing agent.
Pro Tip: While title insurance protects you from the financial headaches that could arise from ownership disputes, there are other factors you might want to protect yourself from. You might want to consider reading our guide to umbrella insurance if you want to up your personal liability protections.
As we said at the top of the article, real estate sales are extremely complicated and have a lot of moving parts. Sometimes things go smoothly, and sometimes it doesn’t. And when all is said and done, you don’t want to be on the financial hook for someone else’s mistakes or confusion.
Title Insurance FAQs
As a buyer, you’ll be required to purchase a lender’s title insurance policy that protects the financial institution issuing your loan from financial damages should issues arise during the sale of the property. To protect yourself, you’ll need to purchase an additional buyer’s policy that may or may not be included in the closing.
It’s likely that title insurance was included in the closing of your property, but there’s a possibility it wasn’t. Review your documents or contact the closing agency to confirm.
It depends on where you live. Some states have regulations in place that dictate how much title insurance premiums can be, and others are more flexible. If you’re concerned, ask your closing agent if it’s possible to decrease the costs.
Title insurance costs between $500 and $3,500 on average, but that figure greatly depends on where you live, the cost, and the history of the property you’re purchasing.