When potential homebuyers find their dream homes, they’re often too busy dreaming about paint colors or new furniture to worry about title insurance.
However, a title policy is an important protection that helps defend buyers (and their lenders) from future property ownership claims, surprise liens or otherwise cloudy titles.
Homebuyers usually purchase title insurance as part of their real estate closing costs, and they often take the first insurance company suggested to them by the seller, says Rafael Castellanos, a managing partner at Expert Title Insurance Agency, in New York.
Unfortunately, many buyers get sticker shock when they realize how much title insurance is.
“The fees are generally about 1 percent of the loan amount,” he says.
The good news is that buyers can save hundreds of dollars off policies if they are willing to ask questions and get independent guidance, Castellanos says.
Here are four ways buyers can save money on their title insurance policies:
1. Shop around for the best deal. Title insurance includes a two-part process. First, there is a search of a property’s title history to determine if there are any errors or problems with the deed. Second, an insurance policy is underwritten to protect the buyer if a problem is later discovered, Castellanos says.
In several states, insurance providers are allowed to set their own rates, which means the insurance premiums can vary widely. But homeowners won’t know which title companies offer the best rates unless they search around, Castellanos says.
A good place to start searching is the website of the American Land Title Association, which provides an online search based on geography.
Another option is to ask an independent attorney for help in understanding local regulations, costs involved and insurance company recommendations, Castellanos says.
“Buyers need someone who has an independent thought and who is well-versed in real estate,” he says. “The best person for that is often an attorney.”
2. Negotiate the add-on fees. While some homeowners can shop around for rates, this may not be an option in states where insurance is highly regulated.
However, in nearly all cases, there are ancillary fees involved with purchasing these types of policies. Usually, these can be negotiated, Castellanos says. This is regardless of the insurance regulations involved, he says.
These add-on expenses include mail and courier charges, copy fees, and costs for searches and certificates, says Armando Montelongo, a San Antonio-based investor who conducts seminars on real estate.
“Often, reducing your expenses can be as simple as calling up the title insurance company and saying, ‘I really do not want to pay these fees, can you remove them?'” Montelongo says.
He adds that if a title insurance company balks at removing the expenses, a buyer can always look for another provider.
3. Ask for the “simultaneous issue rate.” Homeowners buy title insurance to protect themselves. At the same time, their mortgage company will likely require that a separate insurance policy be issued in the lender’s name.
It is typically the borrower’s responsibility to pay for both, Castellanos says.
“Most people need a lender to help them finance the purchase of their home,” he says. “The bank partners with you, but they need to be protected and confident that they have a valid first lien against the property, so they require this insurance.”
Although the two insurance policies are independent of each other, there is a way borrowers can purchase both and save money, he says.
“When the policies are issued at the same time, in some states, there is something called the ‘simultaneous issue rate,'” Castellanos says. This is when the premium for the lender’s insurance is highly discounted.
As a result, the total title cost for both policies is usually a lot less than if they were purchased independent of each other, he says. Castellanos advises all buyers to ask for this discount.
4. Ask the seller to pay for your policy. In real estate, anything is negotiable. That means buyers can request that sellers pay for title insurance.
According to Edward Mermelstein, a real estate attorney with Rheem, Bell, and Mermelstein LLP, in New York, asking the seller to pay for title insurance traditionally has been an unusual request.
However, Mermelstein says in the current economy, it’s a buyer’s market. That means sellers are motivated and may be more willing to negotiate.
“We are living in an uncommon real estate environment,” he says. “Until the market turns around, you will see people financially negotiating on every term, including asking someone to pay for their title insurance.”
However, Mermelstein cautions that it’s important for buyers not to lose sight of the overall goal, which is to close the sale.
There are many other concessions buyers can ask for in a deal — such as a reduced purchase price or a home warranty — that could turn out to save them even more money than having the seller pay for title insurance, he says.