It's not easy to keep track of the myriad details when buying a home, but there's one cost that should get some attention: title insurance.
No, this pretty big expense doesn't guarantee you first dibs on movie-naming rights if it turns out your new house is haunted and worthy of a new version of Amityville Horror. Instead, it protects your lender, and sometimes you, too, just in case the person selling the home doesn't really own it.
Sounds crazy, right? It's rare, but it does happen. The title agent will check the history of your property by looking through public records, like deeds, mortgages, wills, divorce settlements, court judgments, and tax records, just to make sure. The insurance kicks in if some previous owner shows up to make a legal claim on the property, or if someone has placed a lien on the house.
The expense for this insurance shows up among the items collectively called closing costs. A Bankrate survey found that it cost $859, on average, for lender's and owner's policies and associated costs on a $200,000 loan.
Consumers beware
It's sometimes difficult to know whether you're getting the getting the best deal in title insurance. Despite the presence of many players in the industry, including First American Title, Stewart Information Services
For one thing, consumers have a lot on their minds when they're buying a house. Title insurance is just a drop in the bucket when compared with all the other costs and complications involved. In addition, consumers often aren't the ones to select a title agent or insurer. The insurers often market themselves to the real estate or mortgage companies, not the home buyers.
In some cases, real estate agencies or other companies involved in the process might own part or all of the title agency. That's permissible under certain laws, as long as the consumer knows about the connection and the price of title insurance is disclosed.
The report found some evidence that prices for title insurance appear have been increasing rapidly as property values and mortgages have been increasing in many markets. It's hard to tell whether the amount paid by consumers reflects the actual cost of producing title insurance policies.
Shop around
Some state regulators and the Department of Housing and Urban Development have started looking into this arena. Specifically, they're starting to ask whether consumers have been overcharged and whether certain business arrangements inhibit competition. In the meantime, it's up to consumers to make sure they're getting the best deal possible.
First, you'll need to check state regulations. A few set caps on rates or approve premiums for title insurance.
Start the process knowing that federal laws protect you from being required to purchase title insurance from any particular company. Your mortgage lender may require that the insurer meet certain standards. Browse through this HUD publication if you have any questions about your rights when it comes to title insurance or other closing costs.
Then, shop around. Your lender should give you a good faith estimate of your closing costs, including title insurance, which will give you a benchmark for comparing other prices. Make sure you know what other closing services (if any) will be included in the price so you can make a fair comparison among the rates. If you're refinancing your home, or your home has changed hands within the past few years, you might be able to get a less expensive policy at a "reissue rate."
If you're in the market for a home, or thinking about refinancing, you can find a lot more information about mortgages, insurance, and even maintenance in the Home Center. Check out Motley Fool Green Light if you're interested in strategies for maximizing your personal finances when it comes to your home, sweet home. A 30-day free trial can get you started on the road toward your dream home.
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