From making sure your financial documents are in order to packing boxes, there are several moving parts when closing on a home. One thing homebuyers give little thought to is how to title their home.
Sure, it’s not as exciting as designing your new space or going furniture shopping, but how you title your home is important to avoid potential headaches later on. You might not realize there are several options, and the best one depends on many factors, such as your family’s circumstances, your reasons for buying a home and what you want to happen to it in the event of your death.
Here’s what you need to know about how to title a home.
What is a house title?
A property’s title is the bundle of rights that dictates who has legal or equitable interest in the property. In real estate, a document called a “deed” records a property’s title, and the transfer of that title between two parties or individuals. Your county or municipal clerk’s office typically keeps a copy of deeds for all properties in its jurisdiction.
When you purchase a home, a title company conducts a title search to ensure that the seller is the sole owner of the home and no one else has any legal claim to or against the property. Lenders often require borrowers to purchase lender’s title insurance, which protects the lender against loss for the loan amount if someone has a claim against the property.
If you don’t have clear title to the home, someone else might be able to argue that they’re the legal owner of the property and that the person who sold it to you didn’t have the right to do so. This can lead to major legal complications and headaches that you want to avoid.
Homebuyers are strongly encouraged (but not required) to purchase additional owner’s title insurance, which protects their investment if there are legal challenges to ownership down the road.
What are the different ways to hold a title?
The manner in which titles will be held for a property is an important consideration. Title rules vary from state to state, so your options might be limited depending on your state’s laws.
“These concepts go back to common law in England, but each state adopts their own version of them,” says Jordan Lulich, a real estate attorney and licensed title agent with Attorney Title Fund Services in Melbourne, Florida.
Here’s a general primer on each of the most common title options and the situations in which they’d be applicable:
A property with a sole ownership title in the name of one person
Who it’s best for: Single people living alone or the spouse who is purchasing a property as an investment
What to know: If a married person wants to assume full financial responsibility for a property, their spouse must typically sign a quitclaim deed, giving up their ownership rights.
Joint tenancy with the right of survivorship
Two or more individuals purchasing a property together, in which each person owns an equal portion of the property and they move in at the same time
Who it’s best for: Couples purchasing a property together
What to know: Under joint tenancy, if one person dies, the other gets full ownership of the property without it passing through probate. They simply have to file an affidavit affirming that the title holder has died, along with a death certificate. There are also some cases in which you might not want joint tenancy, such as if one spouse has credit issues or works in a high-liability occupation. In those cases, creditors or litigants could potentially lay claim to the property if it’s held in joint tenancy. Couples with one spouse in a second marriage or with children from a previous relationship might also want to avoid joint tenancy, if a parent would prefer their interest in the property goes to the beneficiaries of their estate instead of their current partner.
Tenancy in common
Under this method, multiple people can hold the title and own the property together, but they’re able to sell their interest or pass it on to beneficiaries of their choosing after they pass away.
Who it’s best for: Tenancy in common is best for groups of people who want to purchase a property, and for married couples who don’t want their share of the property to automatically transfer to their spouse. “This method is popular among people who are married for a second time, since it allows each spouse to will their share of the property to their children from their first marriage,” says Jeremy Yohe, a spokesperson for the American Land Title Association.
What to know: If you own a property via tenancy in common and don’t have a will, your share of the property will be distributed based on state probate law.
Tenants by entirety
Some states allow married couples to own a property via this title method, which gives both spouses full ownership of the property. This is most common in community property states. Creditors can’t lay claim to the property if they’re pursuing a debt that’s only owed by one of the spouses.
Who it’s best for: Married couples in states that allow tenants by entirety
What to know: Under this method of holding title, one spouse cannot sell their share of the property without consent from the other spouse.
In a living trust
A trust is a legal vehicle that allows you (the trustee) to pass assets such as property to your beneficiary after your death without going through probate.
Who it’s best for: Anyone who wants total control over what happens to their interest in a property after their death. “Trusts are also the most likely to stand up in court if your ownership is challenged,” Yohe says. “The courts see them as rock solid, as opposed to some of the other methods.”
What to know: You’ll need to hire a lawyer in order to draw up the trust, but you could save your heirs any estate taxes and court fees associated with probate. Plus, the terms of a trust are typically kept private and out of the public record.
Why does the manner in which your title is held matter?
The manner in which your title is held matters because it has all sorts of legal ramifications, from how the property can be sold or taken by debt collectors to how your estate manages the property after your death.
If you hold your home title in sole ownership but live in it with a partner, for example, you might expect that your partner will be able to stay in the home if you die. In reality, the executor of your estate might be able to sell the home without getting your partner’s input. If you’d held the title as joint tenants with a right of survivorship, your partner would get full ownership of the home and be able to continue living there.
Another example of why the manner in which your title is held is important: If you owe debts, collectors can try to make you sell your home to settle them. If you held your title as tenants by entirety, your home would be safe from debt collection, assuming your partner did not also have significant debts.
Each method of holding title has different pros and cons. You can choose the way in which you hold your title based on your goals, such as making sure your partner can continue living in the home in the event of your death or choosing exactly how the proceeds from the sale of the home are used.
How to change your title
If your life circumstances change, the process to change your title is relatively simple and inexpensive. The paperwork can be tricky, however, so get a title professional and a real estate lawyer’s help to make sure you’re not making any mistakes.