Whether you're buying a home or trying to refinance your mortgage, you should expect your title insurance to be among the more expensive items you'll have to pay for to get your new mortgage. However, you can save a bundle by shopping around for the most cost-effective policies that will protect you and your investment.
Lenders normally require borrowers to pay for lender's title insurance, which protects the lender against liens and title defects. Homebuyers can also purchase owner's title insurance to protect their investment.
"Very few people waive the option of buying owner's title insurance, in part because the additional premium above the lender's insurance is negligible," says Todd Ewing, president of Federal Title & Escrow in Washington, D.C. "If you choose not to buy it, you are relying strictly on public records and the ability of the title agent to uncover any title problems, such as a judgment that has not been paid, a tax lien or undisclosed heirs."
Jeremy Yohe, director of communications for the American Land Title Association (ALTA), says that owner's title insurance requires a one-time payment at closing which covers the owners and their heirs until the home is sold, while lender's insurance requires a new policy each time the mortgage is refinanced.
"People don't always understand the protection that title insurance offers," says Yohe. "During the title search process, a mistake is found in one out of every three transactions. Those errors are fixed and then the insurance protects the owners from a title dispute."
Shopping for title insurance
According to Yohe, title insurance premiums are typically consistent within each location, although they vary from state to state.
"In many states, title insurance premiums are set by a regulatory body," says Yohe. "Local custom dictates who pays the premium. On the West Coast, sellers often pay for it, while on the East Coast, the buyers usually pay for the insurance policy."
In some jurisdictions, owners are offered a choice between standard insurance coverage and expanded coverage.
"When you are comparing premiums, make sure you know what is included in the type of coverage being quoted," says Ewing.
Save with a reissue rate
Homebuyers and owners who are refinancing may be able to save significantly on their owner's title insurance premiums with a reissue rate.
"Every insurance underwriter has different rules about how they treat a reissue rate, but typically it depends on how long the seller has owned the property," says Ewing. "Depending on the title insurance company, a reissue rate could be available if the owners have been in the home for 10 years or less. Some companies have looser or tighter restrictions. Buyers should ask the seller if they have owner's title insurance so they can request a reissue of the policy, which could save 35 to 40 percent on the premium."
Homeowners who want to refinance their loan may also qualify for a reissue rate depending on the title insurance company's policy.
Shopping for settlement services
Homebuyers (and homeowners who are refinancing) choose the settlement company for their closing, often on the recommendation of their real estate agent or lender. While the insurance premium may be consistent from one title company to another, the settlement fee can vary. The Real Estate Settlement Procedure Act (RESPA) rules in place since January 2010 make it easier for consumers to shop for settlement services, since companies should be bundling their fees into one price.
"The best way to look for a settlement company is to check their website, because a good company will be transparent and put their charges online," says Ewing. "Customers can always ask for discount, which they may or may not get."
Consumers can get referrals from their Realtor or lender, as well as from colleagues or friends.
ALTA's consumer website, homeclosing101.org, has a list of ALTA members searchable by area.
"Consumers should check the websites of three to five title companies to find out what they charge for a settlement," says Yohe. "They should also call each company to ask what is included in the fee to make sure they are comparing the same services in each case. Cheapest isn't always best, so consumers should check on what they are getting for their money and check on the reputation of the company."
Another option is Closing.com, a website that offers price comparisons and contact information for multiple title companies when consumers enter a property address. Regional websites can also be found by searching for title insurance companies by area.
While not every jurisdiction requires title companies or agents to be licensed, consumers can check the insurance commission in each state for licenses and complaints.
Whether you are buying a home or refinancing your mortgage, taking the time to compare title companies can save you money while providing peace of mind that your settlement will go smoothly.
Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance and business. Her clients include The Washington Times, Urban Land Magazine, NAREIT's Real Estate Portfolio, and numerous Realtor association publications. Michele's first book, "HOMEBUYING: Tough Times, First Time, Any Time" is available now at Amazon.com or from www.MicheleLerner.com.