Many first-time home-buyers think that what they offer on a home will be what they have to pay. However, there are usually substantial closing costs the cover as well. People frequently need to leave a five to 10% buffer when making an offer on a property. Otherwise, they might find themselves unable to come up with the full amount of money due at closing.
Buyers need to retain enough financing or cash reserves to cover everything from escrow deposits to title insurance premiums. The majority of those costs are non-negotiable. Property buyers can’t forgo paying for an appraisal because their lender requires it. However, title insurance is a cost that the buyer can control.
Although the policy protecting the lender in a financed home purchase is mandatory, property owners can typically waive their own policy. What is at risk if you choose to forgo title insurance when buying a house?
You could incur tens of thousands in attorney fees
Title insurance protects homeowners from claims that someone else actually owns their property. Such claims are rare but can result in legal battles when they do occur.
Without a title insurance policy, a homeowner facing a title claim will have to pay out-of-pocket for an attorney to represent them in civil court. Depending on the circumstances, that could amount to tens of thousands of dollars in legal costs just to defend the ownership of a property that you have paid on for years.
You could lose everything you ever invested in the property
Paying all of that money for legal representation does not guarantee success. The possibility exists that the judge will ultimately rule against you and determine that the property actually belongs to the person who brought the claim.
In that situation, the other party assumes title, and you lose your ownership. Your down payment, years worth of mortgage payments and any investments you’ve made in repairing or upgrading the property will disappear with that judgment. Title insurance protects you by reimbursing you for the value invested in the home if you lose a title-related court case and helps you pay for an attorney to defend your ownership rights.
Understanding the value of title insurance can help you make more informed decisions during your upcoming real estate transaction.