How title insurance works

Title insurance starts with a title search and examination to spot recorded problems—liens, judgments, easements, or gaps in the chain of ownership. If a covered defect shows up after closing, title insurance pays legal costs to defend the title and, when appropriate, compensates for covered losses. The search and many curative steps often occur before closing so most defects are fixed ahead of time (Consumer Financial Protection Bureau: https://www.consumerfinance.gov/ask-cfpb/what-is-title-insurance-en-218/).

Owner vs. lender policies

  • Lender’s policy: Required by most mortgage lenders to protect the lender’s lien position. It covers the lender up to the amount of the mortgage and typically lasts until the loan is paid off.
  • Owner’s policy: Optional but strongly recommended. It protects the homeowner’s equity and lasts as long as the owner (or heirs) hold title. A lender’s policy does not protect the buyer’s ownership rights.

Costs and timing

Title insurance is usually purchased as a one-time premium at closing. Rates and rules vary by state—some states regulate title rates, others do not—so costs can differ widely. As a general ballpark, owner and lender policy premiums combined often equal roughly 0.5% to 1% of the purchase price, but local fees and state rules change that figure (American Land Title Association: https://www.alta.org/).

Who pays for title insurance?

Responsibility for paying title insurance is negotiable and follows local custom. In some states sellers typically pay the owner’s policy; in others buyers do. Lenders normally require the borrower to purchase the lender’s policy, but the cost may be paid by the buyer, seller, or split between them depending on negotiation and state practice. Always check the Closing Disclosure for the exact charge and talk to your real estate agent or attorney about local norms (CFPB guidance: https://www.consumerfinance.gov/ask-cfpb/what-is-title-insurance-en-218/).

What title insurance usually covers—and excludes

Covers (examples):

  • Forged or defective deeds
  • Unknown heirs claiming ownership
  • Undisclosed liens or encumbrances that predate your ownership
  • Mistakes in public records or improper acknowledgments

Common exclusions: known defects listed as exceptions, zoning or land-use regulation issues, problems that arise after policy date, and matters discoverable by an updated survey unless an endorsement covers survey risks. Endorsements can add protections (e.g., survey, access, or variable-rate mortgage endorsements), but they raise the premium.

Practical tips from practice

  • Buy an owner’s policy when you can — it’s inexpensive relative to a house and protects your equity over the long term. In my practice, owners who declined the owner’s policy have later regretted it when unexpected claims surfaced.
  • Shop and compare: title charges and closing agent fees vary. Ask for a written quote and compare the total title premium plus closing fees.
  • Review the exceptions and endorsements on the policy before closing. If a known issue is listed, require the seller to fix it or negotiate credits.
  • Confirm who will pay by reviewing the purchase agreement and the Closing Disclosure. If you’re refinancing, check whether prepaid title insurance applies — some owners’ policies can be transferred or a reduced-rate reissue may be available (prepaid title insurance).

When to involve professionals

If a title search uncovers liens, boundary disputes, or possible fraud, consult a real estate attorney or the title company’s underwriting counsel. Title companies often handle curative work, but complex issues (tax liens, probate claims) can require specialized legal help.

Related reading

Authoritative sources and further reading

  • Consumer Financial Protection Bureau — What is title insurance? (CFPB)
  • American Land Title Association (ALTA) — consumer resources and endorsements

Disclaimer

This article is educational and not legal or financial advice. For advice specific to your transaction, consult a licensed real estate attorney, your title company, or a trusted mortgage professional.