When you find the home of your dreams, make an offer and apply for a mortgage, you might not give much thought to the cost of title insurance. But that can be a mistake.
A title policy defends buyers (and their lenders) from future property ownership claims, surprise liens and other potentially costly complications with property titles.
Homebuyers usually purchase title insurance as part of closing costs and often take the first title insurer suggested by the seller, says Rafael Castellanos, founder of 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,” Castellanos says.
However, buyers can cut the cost of a title insurance policy by hundreds of dollars if they are willing to ask questions and get independent guidance.
Here are four ways to save money on title insurance.
1. Shop around for the best deal
Title insurance involves a two-part process. First, a search of a property’s title history is conducted to look for errors or problems with the deed. Then, an insurance policy is underwritten to protect the buyer if any issues are discovered.
In several states, insurance providers are allowed to set their own prices, which means the insurance premiums can vary widely. Homebuyers won’t know which title companies offer the best rates unless they shop around.
A good place to start comparison-shopping is the website of the American Land Title Association, which provides a search engine based on geography.
Another option is to ask an independent attorney for help in understanding local regulations, costs involved and insurance company recommendations.
“Buyers need someone who has an independent thought and who is well-versed in real estate,” Castellanos says. “The best person for that is often an attorney.”
2. Negotiate the add-on fees
In states where insurance is highly regulated, title insurers don’t have much wiggle room on their rates. So, homebuyers won’t find much difference in premiums from one company to another.
However, in nearly all cases, extra fees are part of the transaction when you buy a title insurance policy. These add-on expenses include mail and courier charges, copy fees, and costs for searches and certificates — and these charges can be negotiable, even when the insurance premiums are not.
Experts say you often can reduce these costs simply by calling the title insurance company and asking to have some of the fees removed. If the insurer balks, you can always look for another provider.
3. Ask for the ‘simultaneous issue rate’
Homebuyers purchase 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.
“The bank partners with you,” Castellanos explains, “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 one other, borrowers can buy them together and save.
“When the policies are issued at the same time, in some states there is something called the ‘simultaneous issue rate,'” Castellanos says. It includes a highly discounted premium for the lender’s insurance.
As a result, the total title cost for both policies is usually a lot less than if they were purchased independent of each other. Always be sure to ask for this discount.
4. Ask the seller to pay for your policy
When a local real estate market favors buyers over sellers, homebuyers may feel emboldened to ask sellers to pay for title insurance.
That used to be a very unusual request. However, in a buyer’s market, sellers are motivated and may be more willing to negotiate.
“You will see people financially negotiating on every term, including asking someone to pay for their title insurance,” says Edward Mermelstein, a real estate attorney with Rheem, Bell, and Mermelstein in New York.
However, he cautions 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 save even more money than having the seller pay for title insurance.