Title insurance protects both the home owner and the lender in cases of identity theft, unclear title to a property such as heirs of a previous owner that might come forward, fraud, and any other issues that might cloud the real ownership of a home. Title insurance is usually about one percent of the total mortgage loan amount, and involves two steps.
One is to search the title to ensure that there are no past problems at closing. And two, to protect all parties in the future should a dispute arise.
Deciding where to obtain title insurance, and how much to pay will depend on your state. In some states, the insurance premiums are not regulated, so they can be quite costly. You will need to know this so you can shop around. In regulated areas, the price differences will be negligible. In order to get the best price, however, request information and company referrals from unbiased third parties. The lender, for example, would be biased in the sense that he/she just wants to be assured that you are covered, and may choose any company at hand regardless of price.
In addition to the price, but maybe even more importantly, you need to be aware of the trustworthiness of the one who is recommending a company. For example, in this case, the lender will be after the same goal as you. You both want the house’s deed to be free and clear since you both have a vested interest in the property. The seller or real estate agent, on the other hand, just want to get the house sold. They have a monetary reason for you to close the deal. As a result, they may want you to find the same results as they did, thus, you have not protected yourself.
But, what happens in terms of mortgage refinance and title insurance? You already know you own the home so many might ask “what is the point of having a search done now?”. Although not encouraged or even promoted by title insurers, there is a little known secret called the “reissue rate”. This is a substantial discount, sometimes as much as fifty percent, for having had a title search done in the last five years. But, the onus is on you to ask for the rate when refinancing. In addition, each insurer might have strict guidelines regarding this rate. For example, the time frame passed, and how the first search was done. And then some state governments regulate this rate as well.
Further, another way to obtain a reduced rate on title insurance is to ask for the “simultaneous issue rate”. This is in the case where the lender is requiring a policy be taken in each name, the borrower and the lender.
You must also remember that when a lender thinks about home loan refinance and title insurance, it is to protect a large sum of cash. Maybe, when you purchased the home, the deed was clear, but you may have also had a co-owner and if something has happened to that relationship to affect the ownership of the home, the lender has a right to know. The title insurance will disclose to the lender liens on the property that happened between the time of the original mortgage and the new refinanced mortgage.