Do I Really Need Owner’s Title Insurance?

Between fees and unexpected additional costs, buying a house can end up costing more than you anticipated. So it’s totally normal to question those extra items and whether or not you really need them. Take owner’s title insurance. If you’re going to have a mortgage, your lender will insist on a lender’s policy, but is the optional owner’s policy really necessary?

The answer—which you may or may not be happy with—is an overwhelming ‘yes.’

And here’s why.

When you buy a house from someone, there’s no way for you to know if the seller is the true owner of the property. Sure he’s selling it and says he’s lived there for years without a problem, but would you be willing to stake hundreds of thousands (or even millions) of dollars on that claim? Although rare, there are scenarios when sellers turn out to be charlatans, giving away property that belongs to someone else in order to get your money. Or, there might be ownership issues that result from conflicting wills, missing heirs, old tax, or other municipal liens or judgments.

Although these stories may sound like a stretch to the skeptics out there, they can happen to anyone. And when it does, it can bring with it significant financial loss, or even the loss of your new house.

Unless, that is, you purchase owner’s title insurance.

Title insurance is a one-time fee that’s paid at closing and protects homebuyers (as well as their mortgage lenders) in the event that there is a dispute over the property’s rightful owner. If you do have a mortgage, the additional cost for the owner’s coverage is usually only a couple hundred dollars.

Although issues with the title are supposed to be found and addressed during the title search process, there are instances when a problem is overlooked or cannot be found in public records. With owner’s title insurance, you’ll be fully protected if a title problem arises after closing. This means that your title insurance company will cover the costs of defending your ownership interests. A nice deal, isn’t it?

While you should always purchase owner’s title insurance when buying a new house or property from a previous owner, you might have questions about whether it’s necessary in other circumstances. If you’re purchasing a newly built home, for example, you may wonder if title insurance is necessary since no one else technically lived there before you. However, it’s a smart investment because there were probably one or more previous owners of the land on which your house sits. A title search will help determine the boundaries of the property you’re buying, as well as any other issues with the land. (In any case, be sure to speak with your title insurance agent if you have any questions or concerns.)

Additionally, when you’re ready to purchase title insurance, do your shopping. Instead of just assuming that the builder’s in-house title company has your best interests at heart, compare their fees and services to other independent title and settlement services companies to ensure you get the best deal as well as an impartial set of eyes to represent your best interests.

At the end of the day, it’s better to be safe than sorry. While it’s rare that a missing heir will show up on your doorstep claiming the house is hers, it is possible.

Wouldn’t you want to have a safety net in place?