By Brandon Cornett | © 2013 All rights reserved
Question. "I was told that title insurance would be one of my closing fees when buying my first home. How much does title insurance cost, on average? Is there any way to avoid paying it?"
Let me start with a definition, for readers who are unfamiliar with the term. Title insurance provides protection in the event of an ownership dispute. A real estate title is a document that shows ownership of a property.
When you buy your home, somebody will probably do a "title search" to verify ownership of the home. But in some cases, there can still be property disputes later on, after the sale has been completed. It's rare, but it does happen.
A title insurance policy protects the policyholder from losses incurred during a legal dispute over ownership. The biggest loss to you. of course, would be the home itself. Your policy would protect from this kind of outcome as well.
Types of Title Insurance
When discussing title insurance with your lender, you need to know which type of policy they are talking about. There are two types of policies:
- The lender's policy protects the mortgage lender from any losses or costs resulting from a title dispute.
- The owner's policy protects you, the home buyer, from the same things. In most cases, this policy will protect you up to the full purchase price of the home, and it may compensate you for legal expenses as well (resulting from a dispute).
With that definition aside, let's revisit the question at hand: How much does title insurance cost, on average?
You can expect to pay anywhere from $1,000 to $3,000. depending on where you live in the United States. In fact, the state where you reside is the primary factor that determines the cost. New York is one of the most expensive states, where the average policy goes for around $3,800.
This is a one-time premium, by the way. It's not a recurring cost.
The size of the loan also determines the cost of your
policy. So now we have the two biggest factors that drive the price -- geography and loan amount.
You could also multiply the purchase prices times .005 to get a rough idea of the cost. By that formula, title insurance on a $200,000 home would come out to around $1,000. This number is actually low end of the scale, but it does serve as a rough estimate.
Reducing the Cost, and Other Considerations
If the seller had a title insurance policy in place, you might want to contact their provider. In some cases, you can save money by getting a "re-issued" policy, as opposed to a brand-new policy. It's certainly worth a phone call.
Most home buyers use the insurance company selected by their lender. But this is not a requirement. In fact, when choosing an owner's policy for yourself, you are entitled to choose your own provider.
If you do decide to shop around for a title insurance policy, don't focus solely on the cost. You also want to make sure you're getting decent coverage. In general, you should look for a policy that doesn't have a lot of exclusions. An "exclusion" is basically a way for the insurer to get out of covering your losses. The more exclusions there are, the greater the chance you won't be covered.
The cost of title insurance is usually paid in a single lump sum, during the closing process. It will cover you as long as you own the home. Keep in mind there are many other fees and charges that make up your closing costs.
Your lender should give you an estimate of these charges, within a few days of your application. They are required by law to provide this information, and they do it through the Good Faith Estimate document.
I hope this answers your question about title insurance costs, and I wish you well in your home buying process. If you'd like to learn more about the mortgage process, you can do a keyword search at the top of this page. Or you can visit the FAQ page below. Good luck.