Before a home is purchased with a mortgage, it must be covered by a title insurance policy from a title company. While it may sound like a foreign concept to the first-time home buyer, it is actually a necessary aspect of the house buying/selling process.
What Does a Title Company Do?
The title company is where title insurance is purchased before a home is purchased. In fact in some states, closing may actually take place at the company's office vs. the listing agent's office (where your closing occurs and is determined by either your selling agent or mortgage consultant).
The purpose of the title company is to ensure that the title to the home (ownership of the property) is free and clear of any outstanding debts before it is released to the new owner. For example, there may be an unpaid real estate tax connected with the property thanks to the previous owner. In order to make sure that any debts like these are cleared, the company conducts a title search on the property to see what's out there then requires that the new owner pay the debts before a policy is issued.
Who Benefits from Title Insurance?
Believe it or not, the homeowner doesn't benefit from the title insurance policy issued by the title company. When a home is purchased, the only entity that benefits from the policy is the lender. This is because they require this type of coverage before agreeing to the loan they want to make sure that there are no outstanding debts and that if something does pop up, the insurance will cover it.
There is no doubt that you will have to purchase title insurance before closing anytime a home is purchased with a mortgage. So if you know that buying a house is in your near feature, you might as well cozy up to the idea that you will be working with a title company before the deal is sealed.
