Title insurance normally accounts for largest single closing cost that you’ll have to pay when you’re buying a home. It’s also one of the most confusing.
Although the mortgage company (if you use one) will require you to buy a Loan Policy, you will also likely be encouraged by your realtor or attorney to buy an Owner’s Policy to protect yourself. If you find yourself asking "do I really need to buy this?", then you’re certainly not alone.
After all, how many people do you know that have ever had to make a claim against their title insurance policy? Claims are so rare that statistically speaking the answer is probably none.
So why should you pay for it? The answer you’re most likely to hear to that question ("Because you never know" or "Because everyone does") are hardly the most satisfactory. In fact, when everyone else is doing something that doesn’t make sense to me, I want to do it even less!
But, there’s another factor to consider most people don’t think about: buying an Owner’s Policy could actually save you money in the long run.
Here’s why. Over the duration of owning their home, most people will refinance their mortgage at least once, but maybe two times or more. When you refinance, the bank will once again require you to buy a Loan Policy.
This is where it gets interesting: in many states, you are entitled to a large discount on a Loan Policy when you refinance, but only if you already have an Owner’s Policy. This discount is often enough to completely offset the cost of the Owner’s Policy itself.
Here’s an example of how this could work: say you buy a home in Miami, Fl for $400k, borrowing a total of $320k (80%). The required lender’s policy would be $1,675, and the optional owner’s policy an additional $425.
Assume that 3 years later, you’ve increased your salary and lowered your debt and want to refinance the remaining $300k on your mortgage — the full Loan Policy rate is $1,575. However, if you can furnish the original Owner’s Policy that you bought, that same Loan Policy would only be $473, saving you $1,102 on your refinance and $677 in total! Not to mention the fact that you have the comfort of an Owner’s Policy the whole time.
The way premiums are calculated varies state by state and so the numbers won’t always work out. And unfortunately even if they do in theory, other title companies aren’t always forthcoming about explaining the discounted rates you’re entitled to.
But armed with the right information, there’s a good chance you could turn a decision that leaves you feeling ‘sold’ into one that you can be confident is going to save you money.
So always be sure to ask if you are eligible for a discount on your title insurance, and if you email us at firstname.lastname@example.org we’d be more than happy to give you a detailed view of your specific situation.