Whether you’re buying a home or refinancing, the fees can be brutal. One of the least understood: title insurance, which can run from a few hundred dollars to thousands.
Depending on what state you live in, it may pay to comparison shop, as some title insurers are cheaper. Although basic title insurance rates are fixed by regulators in some states, you still might save on unregulated ancillary fees by looking around.
Paying more than you have to for title insurance and other closing costs has the effect of increasing the interest rate on your mortgage. Use the Mortgage APR Calculator to see how this works.
What is title insurance?
Basically, it protects the lender from loss in case something goes seriously wrong, like it turns out the seller didn’t have clear ownership, or title, to the property. In some cases, for instance, the seller has undisclosed liens for unpaid bills or taxes.
Most of the cost is not for the insurance itself but for the “title search” that is done to see if there are any obstacles to the sale. Agents for the title company generally do this by going through courthouse records, a tedious process.Title companies have come under fire in a number of states where lawmakers or regulators feel the fees are too high. The firms could face a new level of scrutiny if the Obama Administration prevails on its proposal to establish a Consumer Financial Protection Agency.
For now, though, the system remains the patchwork it has been for many years.
If you are buying or refinancing, the first step is to find out if fees in your state are fixed. The American Land Title Association, the industry’s trade group, says fees are firmly fixed in Florida, New Mexico, Texas, New York, Pennsylvania, New Jersey, Ohio and Delaware.
To shop around, look in the Yellow Pages under “Title Companies,” or use the association’s search tool.