When you buy a home, prepaid title insurance helps protect your ownership rights from undiscovered claims or liens that could challenge your title later. It’s a one-time payment made at closing that secures two types of policies: an Owner’s Policy for you, the homeowner, and a Lender’s Policy for your mortgage lender. These policies safeguard against risks hidden in the property’s history, such as unpaid debts, ownership disputes, or fraud.

Before closing, a title company conducts a thorough title search by examining public records like deeds, tax documents, and court rulings to verify the seller’s legal right to transfer ownership. If issues arise during this search, they are typically resolved before you finalize your purchase. However, since no search is perfect, prepaid title insurance covers you if any undiscovered problems emerge later.

The Lender’s Policy protects the mortgage company’s investment and is usually required by lenders as a loan condition. Its coverage amount decreases as you pay down your mortgage. The Owner’s Policy, while technically optional, is highly recommended. It protects your equity and can cover legal costs if ownership is challenged, lasting as long as you or your heirs own the property.

Common issues covered include forgery in the title chain, undisclosed heirs claiming ownership, outstanding liens from previous owners, clerical errors in public records, and improper easements.

The cost of prepaid title insurance typically ranges from 0.5% to 1% of the home’s purchase price and is outlined on your Closing Disclosure statement, a document required by the Consumer Financial Protection Bureau (CFPB) that details your final closing costs and fees. While negotiable, the buyer often pays for the lender’s policy and owner’s policy, though customs vary by region.

Investing in prepaid title insurance is a valuable safeguard that can save you from costly legal disputes or potential loss of your home years after purchase. Learn more about related topics by reading our Title Insurance article and understanding your Closing Disclosure statement.

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