There are many parties involved in buying a home. You are already familiar with your Realtors (hopefully us!) and your lender if you are buying a home. When you have a ratified contract on either the buyer or seller side, the next person you will meet is your escrow officer. Opening escrow is the happiest moment in real estate, other than someone getting a lot of money wired to their bank account or getting the keys.
The escrow officer is a neutral 3rd party who handles all the money and closing documents in the transaction including cleaning title by paying off liens, and arranging signings and recordation of the deed. They will also offer policies of title insurance through the title arm of their company. Their fees are based on the purchase price of the property and are published on the company’s website.
Once escrow is open, if you are a seller you actually don’t have all that much to do except respond to a few requests to help escrow get the payoff information for any loans you have. Your Realtor and the escrow officer will pretty much walk you through it. But if you are a buyer, after you open escrow, the real work begins. You are going to need to do the following:
-Review and approve disclosures if you have not already
-Conduct inspections if you have not waived them
-Obtain insurance
-Work with your lender to satisfy all of their requirements to get your loan cleared to close
One of the first things that will happen is the lender will give you an initial estimate of costs. On this list there will be lots of things that are easy to understand like your interest rate, loan closing fees, etc. These are all the fees in connection with the transaction and are not all coming from your lender. Many of them are coming from the escrow and title company. But one of the items I get the most questions about is Lender and Owners’ Title Insurance. If you are getting a loan from a commercial bank (rather than a private individual) Lender’s Title Insurance will be required. Owners’ Title Insurance, however, will be clearly marked as “optional,” and it’s a pretty big item so you might consider not buying it and think you are saving several thousand dollars.
Unfortunately:
1) it doesn’t work that way; and
2) title insurance is a really good idea and you should buy it.
To address #1 first:
- In order to issue any policy of title insurance, the title insurance company has to do a lot of research. This costs the same amount for them whether they issue two policies or only one. Therefore, they discount the policies and sell them in a bundle of two policies (or 3 if you have a 2nd mortgage) for about the same price as any one of the policies. So, if you elect to only get Lender’s title insurance, the price will go up to nearly the same price as a Lender’s/Owners’ bundle.
- A nice thing about Owners’ Title insurance is it covers you for the entire length of your ownership. The Lender’s title insurance policy must be purchased every time you replace your financing.
Addressing #2 is much more complicated. Title insurance provides protection against defects in title that no one has been able to establish that have occurred in the past. It could be a sale long ago, a mistake in the original subdivision or a mis-recorded lien. While it is optional, if you don’t buy it at closing when you purchase, you can’t ever go back in time and get it. It is a small cost to protect one of the biggest investments you will ever make from myriad unknowns and I would never go without it. I have included some links here to help clarify.