The Ins and Outs of Title Insurance
If you’re buying a house with cash only, you may have gotten a lower price for it and you certainly won’t have to deal with a bank to get a mortgage loan. Another advantage is that you don’t have to buy title insurance to protect your lender.
Mortgage lenders usually require buyers to purchase a title insurance policy, usually for about $1,000, to protect the lender’s interest in the property. The home is the collateral for the loan, so the lender wants to make sure there aren’t any problems with the title of a property.
While a cash purchase of a home won’t require title insurance for a lender, called a loan policy, homebuyers may still want to buy it for themselves. An owner’s policy protects the new titleholders’ ownership rights. The policy is in effect for as long as the owners or their heirs own the property.
Before issuing an owner’s policy, a title insurance company will search and examine public records to determine the state of the property’s title. Any issues found will be fixed, and if there are challenges, then you’ll be alerted to the issue so you can determine if you want to proceed with the transaction.
You won’t be required to buy an owner’s policy when buying a home with cash, but it may be a smart purchase anyway. Title insurance can protect you financially from any prior liens on the property, restrictions on the use of the property or forgeries in public records.
A missing heir to a former property owner, for example, could be found. Or a deed could have been forged in the past. Title insurance not only helps uncover such issues, but protects you against any undiscovered issues that could arise in the future.
How likely are cash purchases of homes? In January 2017, 23 percent of home sales were cash, according to the National Association of REALTORS®.
Only 6 percent of first-time buyers paid all cash for homes. The most likely buyers to pay all cash were investors, followed by international buyers, distressed sales and second-homebuyers. As investment and distress sales have declined, so do cash sales.
Buying a lender’s policy for title insurance is a relatively small cost when purchasing a house. Still, the savings when paying cash for a home can be a little bit of a boost to your bottom line. At the very least, the savings could be put toward buying an owner’s policy for title insurance for yourself to give you some peace of mind during the buying process.