Title and homeowners insurance are sure bets
Buying real estate is one of the most significant expenses you’ll make in your lifetime. Paying for the property itself, the attorneys’ and agents’ fees—plus all the little things that come up—can add up. When your attorney asks if you’re planning to shell out another $2,000-$5,000 for title insurance and $1,300 for homeowners insurance, you may think enough is enough, no more spending! However, no matter what that voice tells you, we always advise our clients to protect themselves and their property by purchasing title and homeowner’s insurance.
A note to begin: If you have a mortgage, you must purchase title and homeowners insurance to protect the lender’s investment. If you paid cash for your home or have paid off your mortgage, we still strongly advise that you get a policy.
What is title insurance? It’s an insurance policy you only pay for once, at the closing of your purchase, and it protects you (and your heirs!) for as long as you own the home. In 2021, title insurance policy costs are calculated at about $2,000 per $500,000 value of your home. If you own your home for 10 years, that’s about $0.50 a day. Title insurance covers the costs of clearing up an issue related to the deed, and protects you from liabilities related to any such issue.
Want to learn more? Browse the US Government’s Consumer Financial Protection Bureau’s website here for tons of great resources on title insurance.
Why is title insurance worth the cost? Simple: It eliminates the time, money, and emotional toll that a problem with your title would surely bring. Fixing a deed can take over your life, and the worst-case scenario could even result in you losing your home and being responsible to pay back your mortgage.
Low- and middle- income home buyers may want to opt out of this insurance, which is technically optional; but these buyers need the protection this insurance offers more than the wealthy. It can be the difference between happily owning a home and going bankrupt.
Here’s a real-life scenario we’ve seen over our 30 years of experience: Say you purchased a home from the estate of a deceased person, and sometime down the road, a long-lost heir claims the home was willed to them. If they can produce that Will, it follows that the estate wasn’t legally authorized to sell the home to you. Your title insurance would pay any fees to clear up the deed. Furthermore, if that heir sues you for the home, your title insurance would pay those fees. And even in the worst-case scenario, where the heir wins the home in court, your title insurance would pay the lender back for the money you borrowed from them.
Now, think about that scenario but remove the protections that title insurance would have given you. Gives you pause, doesn’t it?
Let’s move on to the more-familiar homeowners insurance:
What is homeowners insurance? If you own a home, you’ll pay a yearly fee for this insurance, usually as part of your mortgage payment. That’s what the “escrow” notices are all about. Homeowners insurance protects the structure itself as well as your personal belongings. It also covers injuries others may get while on your property. As noted above, the average cost of homeowner’s insurance in the US is $1300; but costs vary by location, size of home, and value of your belongings.
What is the benefit of paying for homeowners insurance year after year? Think of it like health insurance: You’re not likely to need it, but you’ll really need it when disaster strikes. Fire, water damage, theft, or even a contractor slipping on your walkway could empty your bank account and drown you in stress. There are hundreds of options for these types of policies, and it’s helpful to shop around to find the policy that’s right for you.
Again, the Consumer Financial Protection Bureau has a trove of information that will help you choose your homeowners insurance policy.
Ready to start your house hunt, or have questions? Reach out to us. We’re here to help.