Sticker shock while preparing for closing can derail a residential real estate transaction. Buyers may max out their financing, only to later realize they require additional funds.
Buyers have to pay not just the amount offered for the home but also closing costs, which can add thousands of dollars to their cash due at closing. One of the most significant line items on the settlement statement is the title insurance premium, and the buyer has to pay for two premiums.
Why is so much title insurance coverage necessary?
Two parties take on financial risk
There are two title insurance policies required during most closings because there are two different parties investing in the transaction. The buyer has their own capital in the form of their down payment to consider.
The lender providing their mortgage also requires protection in case of a future title controversy. The buyer generally has an obligation to purchase coverage for themselves and their lender. They may be able to decline a buyer’s policy, but they cannot forgo a lender’s policy.
The policy protects the buyer and the lender in case an outside party ever makes a credible title claim in the future. Title insurance can pay for legal representation during a title dispute. It can also compensate buyers for any funds they need if the other party prevails in a title litigation scenario.
Understanding the line items on a settlement statement could help people navigate a residential real estate transaction successfully. Title insurance is one of several closing costs that can cause sticker shock, but which ultimately help protect the parties committing money toward a home purchase.
