Buying a Home? Should You Pick Your Own Title Insurance Policy?

The closing process is hectic. Especially for first-timers. Many questions may go unasked, simply because the home buyer isn’t aware they are issues. Here are three such questions:

What is title insurance? Should I have it? If so, how do I buy it?

Closing day for a home purchase is precisely when the buyer has a chance to buy an owner’s title policy. Given how frenzied life can get when it’s time to close on a home, it’s worth knowing about this in advance.

The Lenders Get Theirs. Should You Get Yours?

Loan title insurance is something you pay for at closing. What’s the point? For a lender, the point is critical. The policy would pay out the value of the mortgage balance to make the lender whole again if a claim against your home challenges your title.

So, it’s coverage for the outstanding loan principal, no more. And it’s of no direct benefit to the homeowner — who buys it only because that’s what people have to do in most states if they want a mortgage.

In contrast, getting an owner’s title policy isn’t forced on anyone. Why buy it? Title insurance can cover past defects in your chain of title, unbeknownst to you at closing. Title defects can be quirky, out-of-the-blue issues like outstanding debts of previous property owners, or some transfer in the past with a missing signature.

If it turns out you need to defend your homeownership, a title company’s backing can be helpful. If you don’t have that protection, can you afford to wake up one day and find out you don’t legally own the home? Even though you’ve been paying the mortgage faithfully and are on the hook for the outstanding balance?

Without the backing of a title company, you’ll be the one paying a lawyer and potentially losing your home equity and your home itself.   

All things considered, an owner’s title insurance policy is beneficial. It’s available for a simple, one-and-done payment (and the buyer may even negotiate with the seller to get the premium paid).

Before you get a title policy, you get a title commitment. It’s worth reviewing, as it states the exceptions to coverage. You have a chance, before the policy is issued, to go over the exceptions with the title company. Certain exclusions can be changed, but not all. It’s important to be sure the commitment covers the correctly described property.

Why Would a Homebuyer Shop Around for a Title Insurer?

First, whether you can shop for the best policy deal depends on your state’s customary practices and laws.

For example, there’s Texas. The state insurance department regulates Texas policies, word by word. All policies have the exact same provisions, and all title companies calculate the policy holder’s premium with the same method (taking a percentage of the worth of the home). Following rules set forth by the the Texas Department of Insurance, title professionals can only compete on the basis of their reputation for good service.

Second, if you know you’re going to bundle it with the lender’s policy, you don’t have to shop around. But you can, if you want to. You can choose any title insurer; it’s your policy, after all. But — whether you decide to pay for a standard or enhanced owner’s policy — the price should be the same from company to company.

(An enhanced policy is meant to make you whole again if you lose your title — covering your legal defense and mortgage, and restoring your home equity to you.)

If you feel strongly about selecting your title and escrow professionals, tell your agent at your first meeting. If you don’t, your agent or mortgage company will pick for you.

To avert kickback schemes and costly referral fees, the Real Estate Settlement Procedures Act bars home sales from being conditioned on agreeing to a specific title insurer. Violations may be reported to the Consumer Financial Protection Bureau.

If Allowed to Shop Around, What Should a Buyer Look For?

Buyers can ask around locally to find out about other homeowners’ experiences with title companies.

They can also explain their purchase to the companies, and find out if they’re eligible for any discounts.

Will it be worth the effort to shop around? Buyers might offer differing opinions on the matter. Some people bristle because they are simply expected to sign off on the closing estimates. The choice of title companies typically isn’t bought up clearly as the buyer’s prerogative.

In any case, the products offered by title insurers are generally similar, and the premium is not a major expense. Even if the fees can vary from company to company, shopping around costs the buyer time.  And getting the lender’s plus owner’s policy from the same company will allow for a discount on the pair of policies.

Did you know? In the state of Iowa, the Iowa Title Guaranty is the sole title insurer. The state’s abstractors run the title searches. An Iowa home buyer can have a title insured for a very small sum because the state government backs the coverage.

In states where buyers have a choice of companies, the buyer needs to be sure the title company they select is licensed. State financial services’ departments have websites with licensing information and help desk numbers.

Do All Companies Cover the Entire Time of Ownership?

Yes, they do. An owner’s policy covers the title as long as you own the land — and possibly beyond. (See “continuation of coverage” terms.) This is so although there’s just one, upfront premium. So store that policy safely with the documents for your house.  

If you refinance, that’s OK. Your coverage stays. If you make upgrades to your home, that’s OK too—although you might need to get endorsements and pay for additional coverage. If you transfer the home to a business or change the names on your title, ask your title company first, to find out whether the coverage stays.

At the Finish Line, It’s All About Priorities

If you didn’t know you could choose your title insurer, and you are approaching closing, insisting on a different company will throw your closing date off. Buyers sign closing estimate papers at the beginning of their relationships with agents. When they do, they are signing up for a specific title insurance company to run the title search and issue the coverage.

In most situations, that works out just fine. Title insurance companies in any given location tend to offer similar products, in similar price ranges. The main thing is that the buyer understands the importance of an owner’s title policy, and the added security offered by “enhanced” coverage.

Now that you know, it may be clearer to you why choosing a good real estate agent is so important. Agents do many tasks at once. In many transactions, connecting a buyer with a title company is one of those many tasks. That’s great, but buyers should learn as much as possible about the transaction before forging that all-important agent-client relationship.

Supporting References

National Association of REALTORS®: What is the Real Estate Settlement Procedures Act? (2021; citing the Real Estate Settlement Procedures Act / CFPB Issue Summary).

And as linked.

Photo credits: Ketut Subiyanto and Mikhail Nilov, via Pexels.