How much does title insurance cost?

What you’ll learn (TL;DR)

• Research showed the average cost of title insurance was 0.42% of the property’s purchase price, while the average cost of homeowners insurance was 2.92% of the purchase price.

• You only pay for an owner’s title insurance policy once, usually at the time you purchase your property. This policy covers you for as long as you own the home.

• Title claims are uncommon because a title examiner reviews the property’s history and corrects any problems before you buy the property. A large portion of the title insurance fee is for the work done to prevent claims.

• Title companies spend an average of 22-45 hours to close a transaction and 95% of the cost of title insurance goes toward expenses.

Average Cost of Title Insurance

The cost of a title insurance policy varies based on the state where the property is located, the value of the property, and the policy type. Based on research by the Federal National Mortgage Association (Fannie Mae), the average cost of title insurance was 0.42% of the property’s purchase price. This was based on an average purchase price of $318,000 with an average title insurance premium of $1,337. In comparison, the average cost of homeowners insurance was 2.92% of the purchase price. This was based on a buyer owning a property for 7 years and paying the cost of homeowners insurance for 7 years. The percentage is higher if the property is owned for longer than 7 years and lower if owned for less than 7 years. [1] [2] A title insurance cost calculator is available here.

Title Insurance Is Long-Term Protection for a One-Time Payment

Unlike other types of insurance, you only pay for an owner’s title insurance policy once, usually at the time you purchase your property. In many states, the seller pays for the owner’s title insurance policy. This policy covers you for as long as you own the home, and even covers your heirs who inherit the property. After you sell, your policy may also cover you if you’re sued by your buyer or another owner because of a problem with the title. For a single payment, you may have coverage for years, or even decades.

Title Insurance Helps You Avoid Claims

Claims are only filed on around 3-5% of title insurance policies. [3] Title claims are uncommon because the title insurance process does most of its work upfront. Before property is sold, the title company that will issue the policy performs a title search of the public land records, where deeds and other documents that affect property interests must be filed. A title examiner reviews the property’s history to determine who owns the property and if there are any potential challenges to your future ownership, like deed errors, missing owners, or liens. A lien is an interest in property for a debt that is owed. If the debt is not repaid, the creditor can force the sale of the property and apply the money from the sale to the debt. Mortgages, unpaid real estate taxes, and court judgments are examples of liens. If any errors or problems are found, the title company works to resolve them before you buy the property. For example, the title company may discover that the deed into the seller is defective because it was not signed by all prior owners of the property. The title company may try to locate the missing owner and have them sign a deed to fix the issue.

According to a study by the American Land Title Association, title companies spend an average of 22-45 hours to close a transaction, depending on the difficulty. [4] This includes the work to research title and fix any issues. Title companies estimate that 36% of transactions are “difficult,” meaning they require significant non-routine efforts to clear title. 95% of the cost of title insurance goes toward expenses, and despite inflation, the cost of title insurance has decreased almost 8% since 2004. ^[5]

A large portion of the title insurance fee is for the work done to prevent you from ever experiencing a claim. This is different from other types of insurance, like homeowners insurance, where the bulk of the premium goes toward paying for future property damage that may be caused by an event like a storm or a fire. Unfortunately, you can’t pay in advance to prevent natural disasters!

Title Insurance Gives Valuable Protection

Despite the title company’s best efforts to identify all issues affecting your property, there may be problems that cannot be found in the public records, like hidden liens, A lien is an interest in property for a debt that is owed. If the debt is not repaid, the creditor can force the sale of the property and apply the money from the sale to the debt. Mortgages, unpaid real estate taxes, and court judgments are examples of liens. that do not surface until after your purchase. There may be documents that affect your property that were not found in the title search because they were filed against the wrong property. Or a deed may be defective because it was forged by a criminal impersonating the true owner. Title insurance covers these problems.

While title insurance may seem like just another expense on the closing checklist, title insurance provides long-term protection for your property. Its one-time fee is only a small portion of the overall cost of home ownership but includes valuable protection along with the efforts necessary to lower your risk of a stressful title problem in the future.