Your Mortgage: It’s all about the title

Here’s what you need to know about what title insurance covers, what the costs are, and why you should buy the optional owner’s policy.

What is a title?

A house title is the bundle of rights proving who has legal/equitable ownership of the property. The title is a “concept”, not a physical document. The title company will perform a title search, a legal review of all the past titles for the specified property. This helps determine any title defects: liens, easements, or encumbrances that could affect the lender’s or buyer’s property rights. This is usually done before the sale is finalized. 

What the heck are liens, easements & encumbrances?

  • Liens: can be placed on a property by a contractor, tax authority, or lender who hasn’t been paid. You obviously don’t want to get stuck paying a previous owner’s unpaid bills!
  • Easements: Are someone else’s right to use your property even though you are the owner. An example of this would be if there are utility lines on your property, the utility company would have an easement that allows them to access your yard if/when they need to work on the lines. 
  • Encumbrances: include liens and easements, but also zoning laws, restrictive covenants imposed by homeowners associations, and leaseholder rights. 

What is title insurance?

Title insurance protects your ownership of the property. An example being back taxes still owed on the property, conflicting wills, fraud, forgery, unpaid contractor bills, etc. You pay the premium for title insurance one time when you close on your home.

What are the two types of title insurance? 

  1. Owner’s title – The homebuyer is protected from title-related issues that spring up, even after a thorough title search. The cost is based on the total cost of the home and is effective as long as you retain interest in the property.
  2. Lender’s title – Protects the lender (like Fountain) and the cost is a percentage of the amount being loaned. This insurance is effective for the life of the loan. 

Why do I need title insurance? 

Lender’s title insurance is required, but owner’s insurance is technically optional. BUT owner’s title insurance will protect you against losing your equity and the right to live in the home, especially if a claim arises after your purchase. You may think owner’s title insurance is a waste of money if you never actually need it, but we like to think of it as a small price to pay to protect your investment and interest in case someone tries to challenge you after you close on your home.

This weekly Sponsored Column is written by Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.

Fountain Mortgage NMLS: 1138268