Understanding Title Insurance, Appraisal and Homeowner’s Insurance
Title Insurance, Appraisal and Homeowner’s Insurance. These are very confusing areas of a real estate transaction. Some people can get confused, but that’s easy to understand when you consider that they have little knowledge or guidance concerning real estate transactions.
Title Insurance
When you buy a home, a title company examines the chain of titles (titles belonged to the previous owners) to make sure that there are no problems with obtaining clear title to the property. Parties other than the current owner of the home may have rights to it for things such as mortgages, liens due to unpaid taxes, lien claims to those who the owner owes money, etc. As a new owner, you might know nothing about these risks, but you are still vulnerable to such claims on your property. A deed is not sufficient protection. That’s why title insurance is necessary. It is very common for title companies to also handle the escrow portion of the transaction, meaning they serve as a neutral party to exchange funds and make sure both parties adhere to the agreed upon terms of the contract.
Home Appraisal
Lenders require appraisals to confirm that the home for which they’re providing you a loan is in fact worth the amount you’re paying. Appraisers are independent agents normally hired by the lender; however, you may have a choice. The fees appraisers charge vary and are typically built into your loan costs. Your lender may also require a Location Survey that certifies the house is within the boundaries of the lot. The lender often selects the surveyor, but again, you may have a choice. The lender usually pays for the cost of an appraisal. Then it’s factored into the buyer’s closing costs.
Homeowner’s Insurance
If you are not assuming the seller’s homeowner’s policy, you will need to buy your own. Title will not be transferred until you can prove you have the home covered by insurance. This protects you against incidents such as fire, flood, tornados, or any other damage to the home. You may also consider additional levels of insurance to cover natural disasters that are common in your area.
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