When buying a home, there are various costs and expenses that arise during the process. These may be known as closing costs, and one of these items included is the Title Policy
Title insurance is required for nearly all mortgage loans in Texas. This special type of insurance carries a one-time cost and acts as a critical safeguard for homebuyers against “title claims” – such as undisclosed debt associated with the previous owner.
How Title Insurance Works
In the state of Texas, government officials record all real estate transactions. Occasionally, records related to a property can indicate unpaid debt – we have seen “mechanics liens” and debts associated with bail bonds, just to name a few colorful examples. Since these types of debts or issues are associated with ownership in the property, homebuyers should be aware of the risks.
Buyers want homes that they will own “free and clear” aside from any mortgage-related funds. This is where title companies play an invaluable role.
When a buyer purchases title insurance for a property, the title insurance company will perform a title search, where they scrutinize all available records that relate to the property. In particular, the company will work to identify any potential ownership issues – if discovered, the title company will attempt to resolve the issue.
Despite the rigorous search, there can be cases where problems arise after the homebuyer has purchased the property. This is when a title insurance policy is critical. Homebuyers who encounter these issues are grateful for the protection offered by title insurance.
Who Pays the Title Insurance, the Buyer or Seller?
So, who is responsible for paying for the title policy in Texas, the buyer or the seller? While this can vary from one transaction to the next, it is customary in Texas for the seller to pay for the owner’s title insurance – while the buyer pays for insurance for the lender. Similar to many closing costs, these fees can be negotiated between buyer and seller.
One exception to this practice is when a property is purchased from new construction developments – typically, the buyer must pay for both types of title insurance in these cases.
To recap, there are two different kinds of title insurance policies for Texas homebuyers:
- The lender’s policy is required in most situations where the transaction is financed. This policy protects the lender or bank, typically until the loan has been paid off or refinanced.
- The owner’s policy is customarily paid for by the seller and is usually optional. In most cases, the cost of the owner’s title insurance policy is paid only once, though the coverage lasts indefinitely. While exact details can vary, this is typically how this coverage functions.
According to the American Land Title Association:
“An Owner’s Policy is typically issued in the amount of the real estate purchase price, and remains in effect for as long as the owner, or his or her heirs, retains an interest in the property. In addition to identifying risk before a transaction is completed, the Owner’s Policy will pay valid claims and all defense costs against attacks on the title.”
Title Insurance Cost in Texas
Title Insurance Premium Rates for Owner’s Title Policy are based on the sales price of the property and are set by the Texas Department of Insurance. In Texas, the cost of a title policy can range from 0.6% to 0.9% of the property value. In general, the higher the property value is, the higher the title insurance rates will be for that property will be.
For example, the cost of a Texas title policy is around $832 for a $100,000 property, $1,359 for a $200,000 property, $2,413 for a $400,000 property. There are many online calculators for individuals to calculate these exact costs for their specific purchase.
Additional Loan Expenses
The various fees included in buying a home are combined into “closing costs,” a collective term. These fees can be from the lender and third parties involved in the transaction, such as title companies and home appraisers, and may be overseen by an escrow officer.
Closing costs consist of all the additional costs that homebuyers have to pay as they prepare to close on their home. Fortunately, some of those costs can actually be paid by the seller! The typical estimate mortgage lenders provide for closing costs is between 3% and 5% of the home’s value
Typical Closing Costs Include:
- Credit report acquisition fees
- Mortgage origination fee for processing loan paperwork
- Discount points
- Home appraisal
- Property survey
- Insurance and title search
- Escrow deposit
- Recording fee from the city
Again, these are just general charges included in closing costs for homebuyers. Your situation might include additional costs, or some of the above fees may not apply to your situation.
This blog covers the very basics of title insurance and aims to explain “who pays for title insurance in Texas.” For any additional questions you may have about title insurance in Texas or other mortgage-related inquiries, feel free to reach out to one of JVM Lending’s knowledgeable Client Advisors. You can reach our team 7-days a week either by phone at (855) 855-4491 or by email at [email protected].