When you decide to purchase a Gig Harbor real estate property you will notice that typically your lender will require you to purchase title insurance. Though this is required by the bank many potential owners ask what is title insurance and why am I required to pay for it as the buyer?
When you purchase a home you want to make sure that the people selling you the home actually hold full legal title to the property. The people who conduct the closing of the property will check this by going to the local property records office to figure out the ownership history of the real estate. However, though the records at the property records office are official, they may also be wrong. The person at the office doing the title research could also make a mistake in their research.
For instance maybe the Gig Harbor waterfront real estate property that you are interested in had a lean against the property or some of the taxes were never fully paid. Or, maybe 40 years ago the property was owned by someone else who had a relative who has an ownership claim against the property.
All these potential issues could result in you and more importantly the lender losing money on the property you are purchasing. So, this is why the lender requires you to purchase title insurance. This form of title insurance called “lenders coverage” protects the lender in case of any title issues that might arise during the duration of the loan. Lenders coverage is typically required by the lending institution and will provide coverage for the lender up to the original mortgage amount. So, if you buy a home for $250,000 and take out a $200,000 mortgage then the coverage provided to the lender would be up to $200,000. This means if there is a claim against your property the title insurer will fight for you in court and even if you lose you won’t owe the bank anything.
But, what about the $50,000 you put down on the loan? This amount is not covered by the lenders coverage that you paid for. However, you can also purchase “owners coverage” which will cover your portion of equity into the home. Typically you can get an “inflation rider” with this coverage that increases the value of your title insurance coverage as the value of your Gig Harbor real estate rises. This can be a great option for you to add to the required lenders coverage in order to protect your portion of the investment.
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