Many people experience sticker shock when looking at the listing prices for homes. What they may not realize is that the final amount they pay is often substantially higher than what they initially offer.
In addition to covering the offered price for the purchase of the home, they have to pay closing costs. Those costs often include inspection fees and appraisal costs. Buyers usually also need to pay for two title insurance policies.
Those policies cost thousands of dollars apiece in most cases and contribute substantially to overall closing costs. Buyers who understand the purpose of the policies may feel less frustrated about this expense.
What is the purpose of title insurance?
The policy protects financial investments. People buying real property technically buy the title to the land or residence they purchase. The purchase process includes a title search that involves reviewing ownership records and any liens that might be in place against the property.
Mortgage lenders generally require a title insurance policy to cover the principal balance that they fund for the purchase of the property. Buyers also usually acquire policies that protect their down payment and accrued equity.
If an outside party eventually takes legal action to assert an ownership interest in the property, the title policy can protect the owner. Title insurance can pay for legal representation during title litigation. It can also reimburse lenders and homeowners in scenarios where the courts side with the outside party.
While title insurance is costly, it provides very valuable protection in potentially devastating situations. Buyers concerned about the exposure and costs of closing may benefit from partnering with a real estate attorney. Learning more about the different expenses can help buyers feel more confident at the closing table.