When a borrower receives a Good Faith Estimate from their mortgage broker there are usually two fairly large fees on it.  The first one is the Origination Fee.  That one is pretty self explanatory.  The Origination Fee is the compensation to the mortgage broker for obtaining the mortgage loan on behalf of the borrower.  The other fee is the Title Insurance. 

Title insurance is one of the largest fees on the Good Faith Estimate from the mortgage broker, yet one of the least explained fees.  Besides the loan itself to acquire the property, the Title Insurance is the most important part of the transaction to make sure that the title of the house remains safe during the time of ownership.

What is Title Insurance?:  When a house is sold, all of the parties involved with the transaction want to be sure that the title is clear.  Title insurance protects the owner of the property from problems with, or a loss arising from, a title that was not clear.

Over the course of a homes lifetime, it may change hands several times.  It may have unpaid taxes, or other liens filed against it.  The property description may be incorrect.  Title insurance protects the homeowner for claims filed against the property that may arise from the above, or others.

Why Do I Need Title Insurance?: We may live in the information age when everything is done either on a computer, or by a computer, but because actual people are still involved with the recording of the deed, doing the property surveys and the such, the chance for a mistake to be made is still there.  Having the title insurance insures that you have someone there to fight on your side to make sure that any error in the title report is resolved.

Do I Have to Have Title Insurance?: If you purchase the property with a mortgage loan all mortgage lenders will require that title insurance be in place, not only to protect the buyer, but to protect the lenders interest in the property they have written a mortgage on.

Owners vs Lenders Title Insurance:  There are two basic types of title insurance, Owners and Lenders.

Owners title insurance protects the interest of the owner of the property and usually insures for the purchase price of the property.

Lenders title insurance covers the lenders interest in the property and is usually written for the amount of the loan that was taken out against it.  This title policy is only in effect for as long as there is a loan against the property.

How Do I Choose a Title Company?:Because obtaining title insurance is part of the home buying process, and the fact that consumers only have to purchase title insurance maybe a few times over the course of a lifetime, most buyers usually take a referral from either their Real Estate Agent or their Mortgage Broker. 

But this next part is what is generally NOT explained to the home buyers.  Federal and state laws say that no one can require the purchase of title insurance from a specific company.  While a buyer may obtain a referral from their Agent for a specific company, it is ultimately the decision of the buyer on what company to use. 

Generally, an Agent or Broker has a working relationship with several title insurance companies to make sure the title report is ordered quickly, to resolve any title issues that may come up, and be sure the closing is handled in a timely manner.  It is important to remember though, that the buyer has the ultimate choice.  A buyer may take an Agent or Brokers referral, but it is important that they buyer be given the choice.