When you buy a home, it’s not only about mortgage lenders, real estate agents, sellers and you the buyer, you also need to work with a title company too. What does a title company do? Do you need a title company?
A title company executes a title search to make sure that the title to your home is legitimate. Title companies ensure there are no existing liens, etc., against the house. Title companies then issues title insurance for that house. Since the home and the land it’s on have likely changed hands several times, it’s possible that something went wrong. Title insurance protects the lender and the new owner against lawsuits or claims against the property. These claims come from disputes over the title in a real estate transaction.
Title companies also often maintain third-party escrow accounts. These contain and guarantee the funds needed to close on your home to ensure this money is used only for settlement and closing costs. At closing, a closing agent from the title company will bring all the necessary closing documents, explain them to all parties involved, collect closing costs, and distribute everything that needs to be paid. Then, the title company makes sure that the new titles, deeds, and other documents are filed appropriately.
What is title insurance?
Once the title is found to be legitimate, the title company will issue a title insurance policy. The policy protects lenders and new owners against claims or legal fees that may pop up from disputes over the ownership of the house.
There are two main types of title insurance: owner’s title insurance, and lender’s title insurance. Owner’s title insurance protects the house owner from title issues. Lender’s title insurance protects the mortgage company. You, the home buyer, will pay for the lender’s title insurance when you close on the house. It’s also a good idea to make sure you have an owner’s title insurance policy as well. In some parts of the country, sellers pay for these policies. In other locations, the buyer must purchase it.
Let’s say you buy a home and get both lender’s title insurance and owner’s title insurance. Then, someone comes forward claiming they are the rightful owner of the home. If the title was wrong, and they are indeed the rightful owner of the home, your title insurance policy will hopefully pay you the value of the home. The lender will pay the amount they lent you to buy the home.
How can people pick the right title company?
Your mortgage lender, lawyer, or even real estate agent can recommend a decent title company. If you’d like to also shop around and potentially save money on closing costs, you certainly have the right to do so. However, this can take some time.
According to the Consumer Finance Protection Bureau (CFPB), your lender is required to give you a list of companies near you that provide the closing services you need. These services include title insurance. You can also search online, ask your agent, or ask your friends or family which providers they’ve used in the past.
When you shop for title insurance, you should know what you’re getting. Are they giving you a lender’s title policy, or an owner’s title policy? If it is an owner’s title policy, what sort of coverage do you get?
How much does a title company charge?
The total cost of a title insurance policy runs 0.5% to 1% of the purchase price when you buy a lender’s and owner’s policy together. If you buy a house that costs $300,000, your total cost would be roughly $1,500 to $3,000. While title insurance costs by state vary, the higher your purchase price, the more you’ll likely pay for title insurance.
What factors go into the charge?
When you get a title insurance quote, the title company fees may be itemized. Some states require that fees are bundled into one title cost quote. Other states require they be itemized. An escrow officer can help answer questions about title closing costs. Title insurance quote fees may include:
- Endorsement fees – Expands title insurance to cover things like:
- Indirect access and entry for a property that’s not adjacent to a public street and needs to cross somebody else’s property.
- Encroachments for structures built too close to another property.
- Covenants, conditions and restrictions in case local zoning regulations allow you to build a second accessory unit on your property.
- Title search fee – Entails looking for potential obstacles to the clean transfer of ownership. This especially concerns whether other people have ownership in or rights to the property.
- Closing protection letter – Promises reimbursement for the lender in the event of losses caused by misconduct by the closing agent.
- Deed preparation fee – Prepares the deed showing the buyer as the new owner of the property. The deed contains the legal description of the property, the name of the present owner the same way it appears on the current ownership deed, and the name of the new owner(s). The title company’s escrow agent notarizes everyone’s signature . Then, the title company couriers the deed to the county recorder’s office where it gets recorded.
- Government recording charges – Assessed by state and local government agencies for legally recording the deed, mortgage, and documents related to the home loan.
- Tax and other certificates – If the previous owner has some unfulfilled responsibility, they can be taken to court and the complaining party can win a judgment that stays with the property until the person is paid.
- Overnight mail charge – Charges for preparing title and closing documents and sending overnight.
- Wire fee – Covers the cost of transporting/wiring the buyers documents to complete the loan transaction as quickly as possible.
- Transfer tax – Levied on the transfer of title to property from one person to another.
- Settlement fee – Paid to the settlement agent or escrow holder.
- Notary fee – Charged for the cost of having a notary public swear to the fact that the persons named in the documents did, in fact, sign them.
- Document preparation fee – Covers the cost of preparation of final legal papers, including mortgage, title, etc.
- Email/electronic document fee – Related to wire fees, same as above only for documents sent via email.
Closing it up
Trelora provides the same service as traditional realtors but charges a low flat fee, which is about $12,500 less than typical commissions on an average home. If you’re looking to save additional funds on title insurance and escrow fees too, consider Signloc Title & Escrow, which has some of the lowest rates in the business.