What Is Title Insurance?
If you've ever looked at a closing statement and wondered, "What exactly am I paying for?" you're not alone.
Title insurance is one of those real estate terms that many buyers hear, but few fully understand. Unlike homeowners insurance, which protects against future events like fire or theft, title insurance protects you from certain problems that may already exist before you buy the home, even if no one knows about them yet.
Let's break it down.
What Does “Title” Mean?
In real estate, "title" refers to the legal ownership of a property.
Before a home sale closes, the title company researches public records to make sure the seller actually has the legal right to transfer ownership. They look for anything that could affect your ownership rights, such as unpaid liens, ownership disputes, or recording errors.
This process helps ensure that the property can be transferred properly to the new owner.
What Is Title Insurance?
Title insurance protects homeowners and lenders against certain issues that existed before closing but aren't discovered until afterward.
Most insurance policies protect you against future events. Title insurance is different because it protects you against problems from the past.
Once the policy is issued, the coverage continues for as long as you own the property.
What Can Title Insurance Protect Against?
While no policy covers every possible situation, title insurance may help protect against issues such as:
Recording errors
Mistakes in public records
Undisclosed or unknown liens
Ownership disputes
Forged documents
Certain fraud claims
Unknown heirs claiming ownership rights
These problems are uncommon, but when they do occur, they can be expensive and time-consuming to resolve.
Do You Pay Monthly?
No.
Unlike homeowners insurance, title insurance is typically a one-time expense paid at closing. There are no monthly premiums.
For homeowners, the policy remains in effect for as long as you own the property.
If you have a mortgage, your lender will usually require a separate lender's title policy to protect their interest in the home.
Who Pays for Title Insurance?
Title insurance is considered a closing cost, but who actually pays that cost is negotiable.
In Washington State, the buyer, seller, or both parties may agree to pay for title insurance. There isn't a law that requires one side or the other to cover the expense.
The responsibility is simply part of the overall negotiations between the buyer and seller and will be outlined in the purchase agreement.
Who Receives the Money?
The title insurance premium is paid to the title company.
The title company performs the title search and issues the insurance policy. Examples of title companies commonly used in Washington include:
Fidelity National Title
First American Title
Chicago Title
WFG National Title
Depending on the transaction, the title company and escrow company may be the same business or separate companies.
Why Does Title Insurance Matter?
Buying a home is one of the biggest financial investments most people will ever make.
Title insurance helps provide peace of mind by protecting your ownership rights long after closing day. While most homeowners will never need to use their policy, it's there to help if an unexpected issue from the past surfaces in the future.
Real Estate Terms Don't Have to Be Confusing
The home buying process comes with plenty of unfamiliar terms, but understanding them can help you feel more confident every step of the way.
Have questions about buying a home in Tacoma or anywhere in the Puget Sound area? I'd love to help.