Homebuyer’s long read
Title insurance and title searches, in plain terms
What the title is, why lenders require a lender's title policy, what an owner's policy covers according to the CFPB, how to shop, and how to read the title lines on your Loan Estimate.
When you buy a home, you are buying the legal right to own it, called title. Before closing, a title company or attorney checks public records to make sure the seller can transfer clear title. Title insurance covers certain problems that the search did not catch. It is one of the least understood items on the closing statement. This chapter explains the two policies the CFPB describes and how to approach them.
The deed and the title
The CFPB explains that when you purchase a home you receive a document usually called a deed, which shows the seller transferred their legal ownership, or title, to you.
Problems with title can come from the past. The CFPB gives examples of claims that could arise from a previous owner's failure to pay taxes, or from contractors who say they were not paid for work on the home before you bought it. Other issues can include recording errors or unknown heirs. A title search looks for these before closing.
Lender's title insurance
According to the CFPB, lender's title insurance is usually required to get a mortgage, and it protects your lender against problems with the title, for example if someone sues claiming an interest in the home. It does not protect your investment, your equity. The CFPB notes that if someone sues with a claim against your home, you are the first person responsible.
Owner's title insurance
The CFPB describes owner's title insurance as protecting the homeowner if someone sues and says they have a claim against the home from before the purchase. It is optional in many places, and you buy it separately from your mortgage.
The CFPB adds two practical points: shopping for title insurance could save money, and if you choose an owner's policy, the total cost is usually lower if you use the same provider for both the lender's and owner's policies than buying them separately.
Who customarily pays for which policy, buyer or seller, varies by state and by contract. Ask your agent or attorney what is customary where you are buying, and remember that custom can be negotiated in the contract.
Where title costs appear on the Loan Estimate
Title services usually appear in Section B or Section C on page 2. If they are in Section C, the services you can shop for, the CFPB says the lender should give you a list of approved providers and you can choose from it or look for others, checking with the lender about any provider not on the list. The owner's policy may be listed under other costs and marked optional.
The CFPB also answers a common worry: title amounts on the Loan Estimate or Closing Disclosure can look different from the title company's own paperwork. Depending on the state, the title company may give you an itemized list of fees required under state law, displayed differently from the federal forms. That does not necessarily mean you are being charged more. The CFPB says that if you add up all title-related costs from the title company, they should match the totals of all title-related costs on the Loan Estimate or Closing Disclosure, and that when comparing title insurance you should compare the bottom-line total.
The title commitment
Before closing, the title company usually issues a commitment or preliminary report. It shows what the search found and what the policy will not cover. Read the exceptions section in particular:
- easements, such as utility lines across the lot;
- covenants or restrictions, such as homeowners association rules;
- liens that must be paid off at closing;
- survey matters.
Ask about anything you do not understand. Some exceptions are routine; others may affect how you can use the property. If you plan an addition, fence or business use, ask whether any restriction affects it.
Seller requirements
The CFPB answers a common question directly: under the Real Estate Settlement Procedures Act, a seller may not require, directly or indirectly, a borrower to purchase title insurance from any particular company as a condition of the sale of a home. If a seller makes this demand, mention the CFPB's answer and talk to your agent or attorney.
Questions to ask
- Which title services are required, and which can I shop for?
- What does an owner's policy cost if bought together with the lender's policy?
- Who customarily pays for each policy here?
- What exceptions are in the title commitment?
- Will any liens be paid off at closing, and how will I see proof?
After closing
Keep the deed and owner's policy safely with your closing documents. The deed is usually recorded with the county; check the county records office to confirm it was recorded. If someone later claims an interest in your home, contact your title insurer before responding.
Title practices and costs vary by state. Check the CFPB's current pages and ask your settlement agent.
Questions to take into the next conversation
- Find the title lines in Sections B or C of your Loan Estimate and note whether you can shop for them.
- Ask for a quote on an owner's policy as well as the lender's policy, from more than one provider if your lender allows.
- Ask the title company for the title commitment and read the exceptions listed.
- Keep the final owner's policy with your deed and closing documents.
The lender already requires title insurance. Am I covered?
Not by the lender's policy. The CFPB explains that lender's title insurance only protects the lender against title problems, not your equity. To protect yourself, you can buy an owner's title insurance policy, which can help protect your financial investment if someone later claims an interest in the home from before you bought it.