Understanding the Role of Title Insurance in the Home Buying Process

Posted on Aug 20 2015 - 11:16am by Housecall

Contributed by Doug Watson, CEO of Frontier Title

title insuranceWith more than five million homes sold annually in the United States, purchasing a home remains at the center of the American dream. A large percentage of these buyers will be making this major purchase for the first time, which can be an extremely stressful and overwhelming experience. Even for an experienced homebuyer, purchasing a home can be a daunting undertaking, as they are well aware of the stack of paperwork that must be completed in order to get the keys to their new home. One of the lesser-known aspects of purchasing a home is the role that title insurance plays within the closing process. Title insurance is a very important investment, so we’re sharing some information to help homebuyers better understand its role in the home buying process.

What is Title Insurance?

Title insurance protects real estate owners and lenders from property loss or damage they could experience from liens or defects in the property’s title. Unlike other insurance options that require monthly premiums, title insurance is a one-time fee paid by the buyer at the time of closing. Title insurance rates differ based on the value and location of the home being purchased. While title insurance is not mandatory, it is a strong investment.

Who is Title Insurance For?

Both homebuyers and lenders need title insurance in order to be insured against various possible title defects on a property. Prior to closing, the insurance company will run a title search on a property. This typically takes between two and three business days and statistics show that more than 33 percent of title searches result in a problem that must be resolved before closing. Liens or defects on the title can include tax liens, abstracts of judgment, child support liens or bankruptcies. A lien means another company or person has the right to keep possession of your property until your debt is repaid. Without title insurance, the new buyer would be responsible for clearing any defects that are on the property.

Closing Versus Funding

A common misconception about title insurance is the difference between closing on a home and funding a home. While they happen almost simultaneously, closing and funding are different actions and both must occur before the keys to the house are released to the buyer and a check is issued to the seller.

At closing, the seller will sign over the deed to the buyer. The buyer will sign the note, deed of trust, loan application and truth in lending documents.

During funding, the lender will authorize the release of all monies to the seller and all third parties once the funding documents are approved. The HUD sheet, an itemized form listing all service fees that must be paid out, must balance with the money coming in before any funds can be released. For example, the money coming in from the lender and your down payment must match the money that needs to be paid out to the seller, the REALTORS®, the title insurance company and other involved parties. If there is a discrepancy and the HUD doesn’t balance perfectly, funding cannot be released until the issue has been resolved.

In order for the transaction to be 100 percent complete, meaning the homebuyer will receive the keys and the seller will receive the money from their home sale, both parties must complete and sign all of the closing documents, these documents must be verified and approved by the title and lending companies, and funding has to be cleared and sent.

It is important to remember that it takes two parties to complete a home sale and in most cases, the two parties sign the closing documents at different times. While title insurance companies work with both parties to make sure the closing process is as quick and smooth as possible, it is not uncommon for delays to occur and the transaction to take place over a few hours.

What is Earnest Money?

Many homebuyers have misconceptions about the earnest money deposit required when purchasing a home. The earnest money deposit is a good faith gesture from the buyer that tells the seller you are committed to purchasing the home. This deposit is separate from the down payment, but is usually applied to the down payment or to closing costs. The buyer will provide this check to the title company before signing the final closing documents and the check will be cashed into an escrow account on that day.

Closing Tips

Many people overestimate how long it will take to sign all of the necessary documents to complete the closing process. Signing all closing documents takes, on average, 60 minutes for the buyer and 30 minutes for the seller. It is not necessary to clear your entire day, but make sure you give yourself enough time in case any unforeseen delays occur.

If you are married, make sure that your spouse is present to sign the documents, as both parties are required to be in attendance to sign off on the paperwork at closing. In Texas, even if only one person’s name is on the title, both spouses must sign off on the transaction as spouses have homestead rights, regardless if his or her name is on the title.

Make sure you bring a valid government-issued ID including a driver’s license, passport or voter ID card to prove your identity at the time of closing.

It is important to understand the basics of title insurance and the role it plays when purchasing a home so you can make an informed decision and have a successful transaction when buying or selling a home.

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Title Insurance: A title is a legal term that refers to the ownership records about a piece of real estate. The records could include the transfer of any property rights and any loans using the property as collateral. Title insurance protects you from claims of ownership, outstanding debts of previous owners, and other title problems that you didn't know about before you bought the property. It doesn't insure against fire, flood, theft, or any other type of property damage or loss.

Texas Title Insurance Basic Premium Rates (2015)

Rates Effective May 1, 2013
Policies Up To And IncludingBasic PremiumPolicies Up To And IncludingBasic PremiumPolicies Up To And IncludingBasic PremiumPolicies Up To And IncludingBasic Premium
$10,000 $238 $32,500 $398 $55,000 $556 $77,500 $716
10,500 $242 33,000 $401 55,500 $559 78,000 $720
11,000 $244 33,500 $405 56,000 $565 78,500 $725
11,500 $248 34,000 $408 56,500 $568 79,000 $729
12,000 $252 34,500 $412 57,000 $571 79,500 $730
12,500 $255 35,000 $415 57,500 $575 80,000 $734
13,000 $260 35,500 $419 58,000 $579 80,500 $738
13,500 $264 36,000 $422 58,500 $581 81,000 $742
14,000 $267 36,500 $426 59,000 $585 81,500 $744
14,500 $270 37,000 $429 59,500 $589 82,000 $748
15,000 $272 37,500 $433 60,000 $593 82,500 $753
15,500 $276 38,000 $437 60,500 $597 83,000 $757
16,000 $280 38,500 $441 61,000 $600 83,500 $759
16,500 $284 39,000 $443 61,500 $603 84,000 $762
17,000 $288 39,500 $447 62,000 $607 84,500 $767
17,500 $292 40,000 $450 62,500 $611 85,000 $770
18,000 $296 40,500 $455 63,000 $613 85,500 $773
18,500 $298 41,000 $457 63,500 $617 86,000 $776
19,000 $301 41,500 $462 64,000 $621 86,500 $781
19,500 $304 42,000 $465 64,500 $625 87,000 $785
20,000 $309 42,500 $469 65,000 $628 87,500 $788
20,500 $312 43,000 $471 65,500 $631 88,000 $791
21,000 $317 43,500 $475 66,000 $635 88,500 $795
21,500 $320 44,000 $479 66,500 $640 89,000 $799
22,000 $324 44,500 $483 67,000 $644 89,500 $801
22,500 $327 45,000 $487 67,500 $645 90,000 $804
23,000 $330 45,500 $490 68,000 $649 90,500 $809
23,500 $333 46,000 $493 68,500 $653 91,000 $813
24,000 $337 46,500 $497 69,000 $656 91,500 $817
24,500 $340 47,000 $499 69,500 $659 92,000 $819
25,000 $345 47,500 $503 70,000 $664 92,500 $823
25,500 $348 48,000 $508 70,500 $668 93,000 $827
26,000 $352 48,500 $512 71,000 $672 93,500 $831
26,500 $355 49,000 $515 71,500 $674 94,000 $832
27,000 $358 49,500 $518 72,000 $677 94,500 $837
27,500 $361 50,000 $522 72,500 $681 95,000 $842
28,000 $365 50,500 $525 73,000 $685 95,500 $845
28,500 $368 51,000 $527 73,500 $688 96,000 $847
29,000 $373 51,500 $531 74,000 $692 96,500 $851
29,500 $376 52,000 $536 74,500 $696 97,000 $855
30,000 $380 52,500 $540 75,000 $700 97,500 $859
30,500 $383 53,000 $543 75,500 $702 98,000 $862
31,000 $387 53,500 $547 76,000 $706 98,500 $866
31,500 $390 54,000 $550 76,500 $709 99,000 $870
32,000 $393 54,500 $553 77,000 $713 99,500 $873
            100,000 $875

Title Basic Premium Calculation for Policies in Excess of $100,000

Using the table below, apply these steps to determine basic premium for policies above $100,000:

  • Step 1 In column (1), find the range that includes the policy's face value.
  • Step 2 Subtract the value in column (2) from the policy's face value.
  • Step 3 Multiply the result in Step 2 by the value in column (3), and round to the nearest dollar.
  • Step 4 Add the value in column (4) to the result of the value from Step 3.


(See examples provided following the table.)

(1)
Policy Range
(2)
Subtract
(3)
Multiply by
(4)
Add
[$100,001 - $1,000,000] 100,000 0.00554 $875
[$1,000,001 - $5,000,000] 1,000,000 0.00456 $5,861
[$5,000,001 - $15,000,000] 5,000,000 0.00376 $24,101
[$15,000,001 - $25,000,000] 15,000,000 0.00267 $61,701
[Greater than $25,000,000] 25,000,000 0.00160 $88,401

Examples for Policies in Excess of $100,000

 

Example 1:

(1) Policy is $268,500

(2) Subtract $100,000 ==> $268,500 - $100,000 ==> Result = $168,500

(3) Multiply by 0.00554 ==> $168,500 x 0.00554 ==> $933.49 ==> Result = $933

(4) Add $875 ==> $933 + $875 ==> Final Result = $1,808

Example 2:

(1) Policy is $4,826,600

(2) Subtract $1,000,000 ==> $4,826,600 - $1,000,000 ==> Result = $3,826,600

(3) Multiply by 0.00456 ==> $3,826,600 x 0.00456 ==> $17,449.30 ==> Result = $17,449

(4) Add $5,861 ==> $17,449 + $5,861 ==> Final Result = $23,310

Example 3:

(1) Policy is $10,902,800

(2) Subtract $5,000,000 ==> $10,902,800 - $5,000,000 ==> Result = $5,902,800

(3) Multiply by 0.00376 ==> $5,902,800 x 0.00376 ==> $22,194.53 ==> Result = $22,195

(4) Add $24,101 ==> $22,195 + $24,101 ==> Final Result = $46,296

Example 4:

(1) Policy is $17,295,100

(2) Subtract $15,000,000 ==> $17,295,100 - $15,000,000 ==> Result = $2,295,100

(3) Multiply by 0.00267 ==> $2,295,100 x 0.00267 ==> $6,127.92 ==> Result = $6,128

(4) Add $61,701 ==> $6,128 + $61,701 ==> Final Result = $67,829

Example 5:

(1) Policy is $39,351,800

(2) Subtract $25,000,000 ==> $39,351,800 - $25,000,000 ==> Result = $14,351,800

(3) Multiply by 0.00160 ==> $14,351,800 x 0.00160 ==> $22,962.88 ==> Result = $22,963

(4) Add $88,401 ==> $22,963 + $88,401 ==> Final Result = $111,364

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Legal disclaimer

The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

While The Yeatman Team of Ebby Halliday Realtors has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources,  The Yeatman Team of Ebby Halliday Realtors makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on texasrealestate.com.

Any legal or other information found here, on TheYeatmanTeam.com, or at other sites to which we link, should be verified before it is relied upon.

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