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What is title insurance and do you need it?

When you buy a home in Pennsylvania, you will discover that the process involves paying several mysterious fees. One such fee you will have to pay is for title insurance. If you are like most new home buyers, you have no idea what title insurance is or why lenders require it. Hopefully this article sheds some light on the subject.

According to NerdWallet, there are two types of title insurance you can buy: lender's title insurance, which lenders require you to purchase, and owner's title insurance. Both are one-time, up-front costs you pay upon closing. You will not have to pay a monthly premium on either. 

Lender's title insurance protects the lender in the event that someone uncovers a title defect after the loan closing. Before it will hand over a title, the lender will hire a research company to look for any outstanding claims on the home such as a levy or lien, mistakes in the ownership history, a pending lawsuit or legal judgment or previously unknown heirs. The company will also look for fraudulent transactions. Despite the research, mistakes do fall through the cracks, and defective titles do get transferred by mistake, hence the need for title insurance.

Lenders require title insurance to protect their interest in the loan should a title turn out to be defective. However, they make owner's title insurance optional. Some people turn down owner's title insurance, but NerdWallet recommends against doing so as if you purchase a home with a defective title, and if someone uncovers the defect, you may lose all interest in your home -- along with all the money you put into it. Though you may balk at the sticker price of owner's title insurance, which runs between $1,000 and $4,000, the initial upfront cost is nothing compared to what you stand to lose without it. 

The content shared here is for educational purposes only. It is not meant to serve as legal advice.  

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