If you’re buying a home for the first time, you’ll likely encounter a number of new terms that have never been part of your vocabulary — origination fee, escrow, contingencies and more. As you review the purchase agreement, pay special attention to two words that play an essential role in defining ownership of a property: title vs. deed.
Deed vs. title: What’s the difference?
The deed and the title for a property are used interchangeably, but they actually have different meanings, explains James Erwin, founding partner of Illinois-based Erwin Law LLC and an expert in real estate.
“Title to real estate is simply its ownership status, and a deed is the document used to transfer the ownership,” Erwin says. “We often refer to ownership of a property by saying ‘X is on title to Property Z’ or ‘X is the titleholder of record on Property.’ That simply means that a review of the records shows that the most recent deed to Property Z transferred ownership to X.”
So, while you might think of a property’s title as a physical document that you can keep in a safe place, the title is really an intangible concept. The deed, however, is something you can actually hold in your hands.
The deed includes the specifics of the buyer and seller involved in the transaction. Let’s say Tim, who is the only titleholder, is selling a home to Lisa and Ann, who are both listed on the loan application to buy the property. In this case, Tim is considered the grantor, and Lisa and Ann are the grantees, Erwin says.
“In addition to being executed by the grantor, a deed must comply with state statutory requirements in order to be valid,” Erwin says, “and it must be recorded in the public records of the county where the property is located. Once a deed has been recorded, it becomes part of what is referred to as the ‘chain of title’ — the ownership record.”
All those recorded deeds aren’t identical, though. There are different types of deeds that can be used in real estate transactions:
- General warranty deed: If you’re buying a home, this is the type of deed you want to receive. It guarantees that there are no outstanding liens, debts or other red flags on the home from any point in time, and if any of those issues do come up, you’ll have no legal responsibility to handle them.
- Special warranty deed: This is also known as a limited warranty deed because it limits the legal liabilities for the seller. Let’s say that Tim owned the property from 2012 through 2021. With a special or limited warranty deed, Tim guarantees that there are no outstanding liens or issues from that period of ownership. If any issues from before that period arise, Tim is off the hook.
- Interspousal transfer deed: These deeds are often used in divorce cases when the deed to the home was previously in both spouses’ names and ownership needs to be transferred to just one of them.
- Quitclaim deed: A quitclaim deed doesn’t offer any legal recourse if issues with the property do arise. It’s often used between two known parties, such as a parent who wants to transfer ownership to a child.
- Bargain and sale deed: This is a simple deed that states that the person selling the property holds the title to the property. That’s it — there are no other protections from claims about past ownership or debts against the property.
When comparing a deed vs. title, you’re likely going to have to pay for more fees associated with the title. This might seem odd: If the title isn’t a physical thing, why are you paying for it?
Because you need to make sure you have full rights to the property.
First, you’ll need to pay for a title search, which can cost between $75 and $100. This is when a title company or attorney combs through property records to look for any signs of potential trouble with the home’s ownership. Did a past owner fail to pay property taxes? Is there an unresolved property line dispute? Did a divorce case between past owners fail to fully resolve ownership at the time?
Think of the title search the way you might review a report of past incidents if you’re buying a used car: You want to know about anything that will give you pause before handing over a check.
Even if the search comes back with a clear title, you’ll also need to pay for title insurance if you’re taking out a mortgage. That’s because most lenders require borrowers to pay for a lender’s title insurance policy to protect their financial interest. This one-time expense is part of your closing costs, and the price is typically between 0.5 percent and 1 percent of the total cost of the home. So, if you’re buying a $250,000 home, title insurance could cost you between $1,250 and $2,500.
You also have the option to buy owner’s title insurance that will protect you in the event of a claim against the property. This might sound like a lot of insurance coverage, but with your home likely the most valuable asset you own, it can be worth it for the peace of mind in an unexpected situation. An heir of a previous owner can claim ownership to your home, for example, or someone could steal your identity and take out a second mortgage on the property.
The deed vs. title comparison might not seem very different, but it’s important to understand the nuances of each. Here are more key mortgage terms to know as you go through the process of buying a home and applying for a loan.