What Does a Title Company Do?

Welcome back to homebuying 101! Whether you're a first-time homebuyer new to the process, or a seasoned buyer who just needs a refresher before buying again, you'll be glad you took the time to learn more about the roles of a title company.

Let's start from the beginning.

A title company will wear many hats throughout your home buying experience. It will ensure titles, conduct closings on real estate transactions, and some will also handle the transfer of funds among the parties.

However, the most important thing a title company will do is make sure that the title to the property is legitimate. This process is referred to as the title search. During the search, an examination of public records will be done to confirm a property's legal ownership. The title search will also determine if there are any claims on the property.

The title is the actual document that shows you own a property. Individuals who have legal ownership in a property are considered "on the title" and will sign the mortgage and other documentation.

Title Insurance

Once the title company proves the title to be valid, title insurance will be issued for that property. This policy will protect both the lender and the owner against claims or legal fees that could arise over property ownership. Unlike other forms of insurance that protect against future events, title insurance protects against claims for past occurrences.

Most title insurance policies will cover:

• Ownership by another party
• Incorrect signatures on documents, including forgery
• Defective recordation
• Outstanding lawsuits, or liens
• And more

There are two common types of title insurance: lender's insurance and owner's insurance. Lender's insurance will protect the mortgage company involved in your transaction in the event that the seller is/was not legally able to transfer the title of ownership rights.

Owner's insurance is simply that. It protects the owner from title issues. This form of title insurance will usually cost about 1% of the purchase price of the property. However, this cost will vary from state to state and by lender requirements.

Picking the Right Title Company

When the time comes to choose a title company, it's important to do your research. Your real estate agent or lender will most likely have a strong relationship with a local title company, but you can always choose a different route based on other trusted recommendations.

As mentioned above, the cost of the title insurance will depend on the size of the loan. It's recommended that you buy an owner's title insurance policy with as few exclusions as possible. You will also want to guarantee that the policy covers the full purchase price of the home. Luckily, the premium is a one-time fee you will pay when you close your home.

If your title company maintains your escrow account, your title agent will reach out to you before the closing. Otherwise, you will deal with your title company at closing when the settlement agent explains the documents you are to sign.

Still have questions? We're here to guide you every step of the homebuying journey. Contact a Mortgage Advisor today for more information.