Title insurance is an essential part of most real estate transactions, yet it remains one of the least understood types of insurance. Misconceptions and myths can cause buyers to undervalue or skip this important protection, potentially exposing themselves to serious risks.
Let’s clear the air by debunking the top 5 myths about title insurance — so you can make informed decisions when buying or refinancing your home.
Myth 1: Title Insurance Is a Waste of Money Because Title Searches Catch Everything
Fact: While a title search does uncover many issues, it’s nearly impossible to catch every defect. Some problems are hidden in records, forged documents, or unknown heirs that only surface later. Title insurance protects you from these unforeseen issues, covering legal defense and losses.
Myth 2: Only Buyers Need Title Insurance — Not Sellers
Fact: While the buyer usually purchases owner’s title insurance, the seller can also benefit from it. Seller’s policies protect sellers against claims arising from disputes over ownership or errors during the transaction. It’s also common for sellers to pay for the buyer’s owner’s policy in some regions, so understanding the policy’s role is important for both parties.
Myth 3: Lender’s Title Insurance Protects the Buyer
Fact: Lender’s title insurance only protects the lender’s interest in the property — specifically the loan amount. It does not protect the buyer’s equity or ownership rights. To be fully protected, buyers should purchase their own owner’s title insurance policy.
Myth 4: Title Insurance Is Only Necessary When You Buy a New Home
Fact: Title insurance isn’t just for new purchases. If you refinance your mortgage, lenders typically require a new lender’s title policy. Also, properties with complex histories or previous title problems benefit from owner’s policies regardless of when you bought the home.
Myth 5: Title Insurance Is Expensive and Not Worth the Cost
Fact: Title insurance is generally a one-time cost ranging from a few hundred to a couple thousand dollars — a small price for protecting your largest investment. The cost pales in comparison to the financial devastation that can come from title disputes, legal fees, or loss of ownership.
Why Understanding Title Insurance Matters
The myths around title insurance often lead to buyers declining owner’s policies, risking their ownership and equity. Knowing the truth empowers you to protect yourself from hidden risks.
Final Thoughts
Title insurance may seem complicated or unnecessary — but it’s a crucial safeguard in real estate. Don’t fall for common misconceptions that could leave you vulnerable.
Before closing on your home, talk to your title agent or real estate professional about both lender’s and owner’s title insurance policies. Understanding what you’re buying can save you from costly headaches down the road.