Title insurance gives you financial protection in case someone claims to have partial ownership of your home after you purchase and close on the property. Part of the lender’s title insurance requirements is to have a title agency check to see if there are any open claims against the home you are buying. If an issue appears before closing, the seller needs to take care of it, either with their own money or their own title insurance policy.
But title search companies do not claim to be perfect and someone may still make a claim to the property after you have bought it. With a title insurance policy in hand, you will not be responsible for paying off the claim — your insurer takes care of that. While this policy may be optional, it is still something that should be considered. Avoid adding more than you need to your closing costs by following these tips to save on your title insurance.
1. Shop around for the best deal
Title insurance involves a two-part process. First, a search of a property’s title history is conducted to look for errors or problems with the deed. Then, an insurance policy is underwritten to protect the buyer if any issues are discovered.
In several states, insurance providers are allowed to set their own prices, which means the insurance premiums can vary widely. Homebuyers will not know which title companies offer the best rates unless they shop around.
A good place to start comparison-shopping is the website of the American Land Title Association, which provides a search engine based on geography.
Another option is to ask an independent attorney for help in understanding local regulations, costs involved and insurance company recommendations.
“Buyers need someone who has an independent thought and who is well-versed in real estate,” says Rafael Castellanos, founder of Expert Title Insurance Agency in New York. “The best person for that is often an attorney.”
2. Negotiate the add-on fees
In states where insurance is highly regulated, title insurers do not have much wiggle room on their rates. So, homebuyers will not find much difference in premiums from one company to another.
However, in nearly all cases, extra fees are part of the transaction when you buy a title insurance policy. These add-on expenses include mail and courier charges, copy fees, and costs for searches and certificates — and these charges can be negotiable, even when the insurance premiums are not.
Experts say you often can reduce these costs simply by calling the title insurance company and asking to have some of the fees removed. If the insurer balks, you can always look for another provider. Do not be afraid to compare options; you are not required to automatically choose the company that your lender or real estate agent recommends.
3. Ask for the ‘simultaneous issue rate’
Homebuyers purchase title insurance to protect themselves. At the same time, their mortgage company will likely require that a separate insurance policy be issued in the lender’s name.
It is typically the borrower’s responsibility to pay for both.
“The bank partners with you,” Castellanos explains, “but they need to be protected and confident that they have a valid first lien against the property, so they require this insurance.”
Although the two insurance policies are independent of one other, borrowers can buy them together and save.
“When the policies are issued at the same time, in some states there is something called the ‘simultaneous issue rate,’” Castellanos says. It includes a highly discounted premium for the lender’s insurance.
As a result, the total title cost for both policies is usually a lot less than if they were purchased independent of each other. Always be sure to ask for this discount.
4. Ask the seller to pay for your policy
When a local real estate market favors buyers over sellers, homebuyers may feel emboldened to ask sellers to pay for title insurance.
That used to be a very unusual request. However, in a buyer’s market, sellers are motivated and may be more willing to negotiate.
“You will see people financially negotiating on every term, including asking someone to pay for their title insurance,” says Edward Mermelstein, a real estate attorney with Rheem, Bell, and Mermelstein in New York.
However, he cautions buyers not to lose sight of the overall goal, which is to close the sale.
There are many other concessions buyers can ask for in a deal — such as a reduced purchase price or a home warranty — that save even more money than having the seller pay for title insurance. Alternatively, consider asking the seller to cover a certain dollar amount of your closing costs rather than title insurance specifically. This will be applied to your total closing costs, lowering how much money you need to bring to the table yourself.
5. Check for lender closing cost discounts
Lenders may be willing to offer a discount on your closing costs, whether you are buying a new property or refinancing the loan on your current home. In addition to shopping around for title insurance companies, remember to compare lenders as well. Your current bank or credit union, for example, may offer a loyalty discount on closing costs. Or your lender may be able to offer a lender credit in exchange for a slightly higher interest rate. Depending on how long you plan to stay in the house, this could save you money in the long run. Or it may be important to you to cut your upfront costs as much as possible.
Frequently asked questions
Is title insurance a waste of money?
Adding an expense is never fun, but as with many types of insurance, the value with title insurance is in the peace of mind you will have knowing you can avoid future title issues completely with a policy in hand.
What is not covered by title insurance?
Title insurance does not cover damage to your home or neglect from deferred maintenance and repairs. You will need to purchase a separate homeowners insurance policy in order to protect your home from events like certain natural disasters.
What other closing fees are negotiable?
Your homeowners insurance premium typically needs to be paid upfront at closing, so compare these insurance costs to lower the cash you need to close. Lender credits and origination fees are also negotiable, as are rate lock fees.
By Lauren Ward, Bankrate.com (TNS). Visit Bankrate online at bankrate.com.