When purchasing a home, there are two types of insurance that every buyer needs. The first is title insurance and the second is homeowners insurance. When you enlist a title company to represent you in the purchase or sale of a home, the title company will require you to have title insurance. The simple reason is that when you enter the home-buying process you are actually purchasing the title. This is effectively recognition of ownership i.e., giving the title holder the right to hold and use the property.
Why Title Insurance?
When it comes to a residential closing, the buyer needs to understand that while their title company has performed a title search, there is still the potential for problems to surface late in the process. Such ugly problems may include undisclosed heirs, forged legal documents, public record errors etc., all causing grievous complications, which can ultimately lead to considerable legal expenses for the buyer. For these reasons, it is necessary to have coverage and the peace of mind that title insurance provides.
If a buyer finds that they are facing a legal battle, title insurance will help by covering the cost of said legal expenses to defend a threat to title. Furthermore, the title company protects buyers fiscally and makes up for the likely monetary loss that the title issues cause. The main reason for title insurance is to safeguard a buyer’s right to own the property. Title insurance is a one-time payment and is typically done upon the closing of the property or home.
Closing costs may include two types of title insurance:
1. lender’s policy
2. an owner’s policy.
Let’s explore how they differ:
A lender’s policy or loan policy is required by the lending institution i.e., bank or mortgage company, which insures their security interest in the home. The policy is designed to protect the mortgage company for as long as they maintain an interest in your home, naturally when the loan/mortgage is paid off.
An owner’s policy protects the property owner’s investment and claim on the title. A smart buyer will opt for this in addition to the lender’s policy too.
What is homeowners insurance?
Homeowners insurance is designed to pay for losses and damage to the home, typically from unexpected events, such as a fire or burglary. It protects the structure of the home and its belongings. When you have a mortgage, you are required to show proof of homeowners insurance to the lender so they can ascertain that the property is protected. The lender is also notified of cancellations and renewals. If you let the coverage lapse for any reason, the lender can send your mortgage into default.
There are many factors at play that affect homeowners insurance rates and premiums including but not limited to:
- History of past claims
- Zip code/neighborhood
- Crime rate
- Condition of the home
- Coverage amount desired
- Building material availability
The most important thing to look for in a homeowners insurance policy is comprehensive coverage. It is also important to note that homeowners insurance provides liability coverage for legal actions from damage or injuries from another person on the property.
When looking at purchasing homeowners insurance, it is best to shop around and most times bundle with your auto insurance provider. The insurance company can typically offer a deal when they provide both types of coverage.
Why expertise matters
Title problems can cause serious issues for both buyers and lenders, but these issues can be prevented and managed with the help of our experts at Landmark Title. If you are buying a property in Arizona or Nevada and seeking guidance with dealing with potential roadblocks, we are here to help. Learn more about our residential and commercial title services and get in touch here. We look forward to walking you through the steps of your transaction and making the process as smooth as possible.