By Christina Kass
When you’re caught up in the excitement of buying a home, the particulars of title insurance may not be the first thing on your mind. However, title insurance is a crucial part of the homebuying experience and is designed to protect what is likely the largest monetary investment you’ll ever make. Understanding the basics of title insurance will prove to you why it is so important.
Thousands of Michigan homebuyers have turned to Vanguard Title to secure peace of mind when purchasing title insurance — but you may be wondering whether or not it’s necessary and how it works. Let’s start with the basics: What, exactly, is a title insurance policy?
The basics of title insurance
The term “title” refers to the collective ownership of rights for a piece of property and includes all previous transfers of ownership and liens. A deed is a legal document that transfers the title from one person to another. When you purchase a home, both the title and deed from the seller become yours.
While important, titles and deeds do not protect you from unknown claims or encumbrances, which can add up to significant financial losses. That’s where title insurance comes in. While not mandatory, purchasing a title insurance policy covers past title problems that arise after you buy or refinance a home — issues that are unknown at the time of purchase. Referred to as title defects, these may include:
- Liens on a property
- Deeds that are lost, forged or incorrectly filed
- Claims to a property by unknown heirs
- Issues with property access
- Unpaid mortgage or property taxes by a previous owner
Attempting to deal with a title defect on your own can be a costly and stressful endeavor that can even result in the loss of ownership of the property. When you’re covered by title insurance, however, the insurance company defends your title in court and pays any settlement amount you owe to clear the title. While most types of insurance cover future accidents, it’s important to note that a title insurance policy will not cover ownership issues that arise after you purchase a home.
The types of title insurance
Title insurance protects both owners and mortgage lenders against past defects or problems with the legal ownership of a property. Therefore, there are two types of title insurance:
- Owner’s policy – This is an optional, yet highly recommended, policy that protects a buyer’s ownership interest in real estate if a past title or ownership issue arises after the purchase.
- Lender’s policy – This policy protects the lender in the event a past title or ownership problem arises after the real estate transaction. Your mortgage lender will typically require you to buy this type of policy before closing on the property.
In Michigan, it’s customary for the owner’s title insurance premium to be paid for by the seller as part of their closing costs, while the lender’s policy is paid for by the buyer. While you can buy a title insurance policy after you close on your new home, it’s not advisable, since any issues that arise after the closing and before you purchase the policy will not be covered.
How title insurance is calculated
Unlike buying other types of insurance, you pay for title insurance only once, when you buy the policy, and it’s typically less than your annual auto insurance premium. Plus, coverage lasts as long as you or your heirs own the property. The cost is calculated by multiplying the purchase price of your home by the rate per thousand the insurance company uses. You can click here to use Vanguard’s Rate Calculator to quickly and easily obtain a policy premium quote.
When searching for a title company, it’s wise to choose one that combines their title products with a variety of settlement services, which include scheduling a closing date, preparing and processing your closing package documents, the disbursement of funds and more.
Choose the Vanguard advantage for your title needs
At Vanguard Title, we know buyers and sellers have the right to choose which title company they’ll entrust with insuring their interest. We’ve successfully closed thousands of real estate transactions throughout Michigan — and we’re ready to help you protect your most important investment. Click here to get the process started.