Buying a home is one of the most significant investments you’ll make in your lifetime. While the impacts of strong financing and an iron-clad contract are apparent, one aspect home buyers may question is how crucial title insurance is to the home-buying process. Is it really necessary?

What is Title Insurance?

Title insurance is a policy that protects buyers and lenders from financial loss due to defects in a property’s title. The title is the legal document that establishes ownership of the property and outlines any liens, encumbrances or legal claims against it. Common issues that title insurance can protect against include:

• Undisclosed heirs claiming ownership
• Errors in public records or documents
• Forgery or fraud related to the title
• Liens against the property

Why is Title Insurance Necessary?

Even with a thorough title search conducted by a reputable title company or attorney, there’s still a risk of undiscovered issues that could affect your ownership rights down the line. Title insurance provides financial protection and legal defense if someone challenges your ownership or if defects in the title are discovered after the purchase.

Another reason? It’s likely you’re required to have it. When obtaining a mortgage, lenders typically require a lender’s title insurance policy to protect their investment in case of title issues. While this policy protects the lender, it’s also advisable for homebuyers to purchase an owner’s title insurance policy to safeguard their own interests. After all, purchasing a home is a substantial financial commitment. Title insurance offers peace of mind by minimizing the risk of unexpected legal and financial complications that could arise from problems with the property’s title.

Title insurance is cost effective because unlike homeowners or automobile insurance, it’s a one-time premium. The cost is relatively small compared to the potential costs of legal fees, court costs or loss of property value that could result from a title dispute, and it can be rolled into your closing costs.

How to Obtain Title Insurance?

Your real estate agent or attorney can recommend reputable title companies that specialize in conducting thorough title searches and issuing title insurance policies. Understand the coverage provided by different title insurance policies and choose one that suits your needs, whether it’s a standard owner’s policy or additional coverage tailored to specific risks. Be aware of any exclusions or limitations in the title insurance policy and discuss them with your title company or attorney to ensure you’re adequately protected in the event you have to use your policy.