811,000 new houses were sold in 2021 in the United States. While some people pay for home purchases in cash, most people buy houses with mortgage loans.

If you use a mortgage to buy a house, you'll need to purchase title insurance.

What is title insurance? If you have questions about it, you're not alone. Many people wonder what it is and why they need it.

Here is a guide to help you learn more about it.

WHAT IS TITLE INSURANCE?

A title insurance policy is a necessity when buying a home, as it's the only protection you have for problems with the home's title. If you look up "title insurance definition," you'll learn about the protection this insurance offers.

When you buy a home, the home comes with a title. When you close the loan on the house, they will transfer the title from the current owner's name to your name.

A title company will also complete a title search during the closing process. A title check reveals details about the home's title, such as ownership rights, liens, easements, and many other things.

When closing on the house, you pay for a title insurance policy, which protects you from issues relating to the title.

Title insurance works like other insurance types. If you have an issue with the title, you can file a claim, and the insurance company pays the claim once they review and approve it.

HOW DOES IT PROTECT YOU?

Learning about the importance of title insurance can help you understand how it protects you.

Suppose you purchase a home and buy title insurance. Imagine then that a few years pass by, and you then discover that the home has a lien on it.

If this happens, you file a claim with your title insurance company, and they pay the lien and any related fees. Title insurance protects you from liens the title company failed to find when issuing you the title insurance.

It also protects you from other events and problems, including ownership issues. Suppose that you discover that the person who sold the house to you didn't own it. Instead, someone else did.

If this issue arises, you could face many troubles. Fortunately, your title insurance covers this issue, too.

Title insurance also protects you from errors that might exist on the title or disputes that arise from boundary issues. If you have any problem with your home's title, you can contact your title insurance company to handle it.

IS IT REQUIRED?

One question many people wonder is if they need title insurance. After all, what problems are common with titles? One of the most common problems with house titles is liens.

If you discover a lien on your house years after buying the home, you'll be responsible for it. If you have title insurance, you can file a claim, and the insurance company will cover it.

While you might not experience this problem, you never know when a problem might occur with the title. Therefore, it's better to buy a plan, even if it's not required.

So, is title insurance coverage required? Of course, it is when you have a loan on your home.

If you don't have a loan, you don't have to buy title insurance. However, you should still consider buying it, as it offers essential protection.

Lenders require it because they have a stake in the property. If you experience an issue with the title and don't have title insurance, you might end up losing the house.

If you lose the house, will you continue making the payments you owe your lender? There's a good chance you wouldn't. Therefore, lenders reduce their risk levels when issuing loans by requiring title insurance.

WHAT TYPES OF POLICIES CAN YOU BUY?

The next thing to understand is the different types of policies that title companies offer. Title insurance companies offer two distinct types of policies:

A Lender's Policy

As the name implies, a lender's policy covers the lender. As soon as the borrower pays off the loan, the policy ends.

Lenders buy this for protection and to decrease the risks they might encounter from title issues on loans they issue.

An Owner's Policy

An owner's policy is what you can buy to protect yourself. When you buy an owner's policy, you can receive compensation for any issues that affect you from title defects.

Additionally, you can choose from two types of owner's policies when buying title insurance. Here are the two options:

Standard Title Insurance

Standard title insurance is the basic form of coverage you can purchase for your home's title. While buying a standard plan meets the legal requirements needed for buying a house, it doesn't provide protection for everything.

Instead, it has limitations. Therefore, it might not cover a problem you experience after closing on your home.

Enhanced Title Insurance

If you'd like more protection from your title insurance policy, you can choose an enhanced policy.

Enhanced policies protect against more things than standard policies. While enhanced plans cost more, they also offer more protection and security. If you prefer having more coverage on your home's title, choose this option.

HOW MUCH DOES IT COST?

As you prepare to purchase a house, you'll need to buy title insurance for it. Are you wondering how much it costs?

Title insurance companies generally charge fees based on a percentage of the home's selling price. The percentage is typically between 0.5% to 1%.

For example, if you buy a house for $300,000, you might expect to pay anywhere from $1,500 to $3,000 for your title insurance policy.

As you can see, the cost is minimal compared to the security, protection, and coverage it offers.

TITLE INSURANCE IS A NECESSITY WHEN PURCHASING A HOME

After reading this, you probably understand the answer to, "what is title insurance?" You can speak to your real estate agent, lender, or title company to learn more about it.

If you would like to buy title insurance when purchasing a home in Pennsylvania, contact us at Heartland Abstract. We offer title insurance policies and can help you protect yourself when buying a house.