What is Title Insurance?

I found this and thought it might be good info.

 What is title Insurance?

Title insurance is the application of insurance to hazards in real estate titles. 

What is “Title”?

“Title” is the foundation of ownership of property.  It means that you have a legal right to possess that property and to use it within the restrictions imposed by authorities or limitations on its use – superimposed on the basic right to possession by previous owners.

What is the difference between relying on an abstract and attorney’s opinion versus title insurance policy?

(a)  An abstract is a compilation of written instruments affecting title to a property.  An attorney’s opinion of ownership and state of title disclosed by the abstract.  An abstract and attorney’s opinion do not disclose various defects in the title, such as fraud, forgery, defective deeds, incompetence of parties signing documents or clerical errors in the records.  In fact, an abstract and attorney’s opinion may not uncover many of the title defects that can exist.  Then, chance of recovery in the event of a title loss in this case depends entirely on the solvency of the attorney examining the title.  The attorney’s liability is limited to errors and oversights that would not be made by a diligent attorney.  The attorney is not liable for loss caused by hidden defects.

 (b)  A title insurance policy indemnifies the insured against monetary loss caused by defects in title not expected to in the policy. 

Why should I protect the home I buy with title insurance?

Because without title insurance, you become a self-insurer.  This is an inadvisable unless you are in a financial position to lose the money you have invested in your home without upsetting your financial condition in any way. 

Are there different types of title insurance of title insurance policies?

There certainly are.  First, there is the Owner’s Policy that the home purchaser needs for his or her protection.  Then, there is the Mortgagee’s Policy, which protects only the mortgage/money lender.  Most financial institutions lending mortgage money on a wide scale insist upon Mortgagee Title Policies for their protection.

 If the lend is getting a title policy, why do I as an owner need one?

The lender’s policy protects the lender’s interest only and does not provide protection to the owner. 

Is title insurance as important as fire insurance?

Yes because your losses without title insurance can be greater than fire losses.  If a house burns, the land is still there to rebuild.  If title to the property fails, you have nothing.  That is why owner’s title insurance is always written to cover value of the house and lot. 

How does title insurance help protect my home?

It places the assets of a corporation behind the title to your home.  If attacked, the title will be defended without cost to you and if the title, or any part of it, should be defective, you will be reimbursed up to the face amount of your policy, for any financial loss incurred.

 How much does the title insurance cost and how long am I protected?

For the protection provided, the cost is modes.  Whie the rates are graduated in Texas, a $100,000 owner policy costs $1,023.00 or about 1% of the cost of the property.  Unlike other insurance with annual premiums, title insurance premiums are paid one time and protect youas long as you and your heirs own the property.

 Why won’t the seller’s title policy protect me?

Their policy only relates the title as of the date of the policy, in other words, their date of purchase of the home.  Since that date, the insured could have conveyed the property or given rights to others in the property.  Once the homeowner signs a Warranty Deed, the policy converts to a Warrantor’s Policy and follows the owner, not the property.

What kind of down payment do you need?

Down payments vary from program to program. The most common downpayment requirements today are 3.5% for FHA   (and this can be a gift from family members), 5% conventional (currently rather expensive in fees and rate and rather restrictive when qualifying), 10% down which is fairly inexpensive, and the most cost effective would be 20% down.  VA loans require $0 down if the veteran has the eligibility.

Any time you put less than 20% down, you will pay extra, either in rate, closing costs, or mortgage insurance. but the closer to 20%, the cheaper.

What are prepaids?

Prepaids are additional cash to close.  Your payment will be made up of Principal and Interest, 1/12 of your yearly taxes and 1/12 of your yearly insurances.  An escrow account (forced savings if you will) will be set up so that when each of these are billed the money is in there to pay for taxes and insuance.  Typically in Texas, you will pay your regular homeowners policy amount for 1 year, 3 months taxes, 3 months insurance, and simple interest to the first of the following month for prepaids.  This is in additions to your down payment and your closing costs.

What are closing Costs?

Closing costs are usually fees charged to you by the lender. They can include origination fees, discount points to buy the rate down,  appraisals, credit reports, attorney fees, processing and underwriting fees, flood certification fees, title company charges with title insurance policies. and others.  In the new GFE the origination fee includes many of the above in a lump sum.

NEW GFE’s

When you go to buy or refinance, you’ll now be looking at a new Good Faith Estimate required by HUD.  It is intended to do 2 things, one it does very well, and one it completely botches. 

We (lenders) have to give you a GFE that tells you more about the loan you’re getting–fixed, arm, etc.  It’s actually a part of the document.  We also have to guarantee certain closing costs–meaning those lenders who had a practice of telling you one thing and then you show up at closing with a much different number–well that just shouldn’t happen anymore (not that it should have ever).   These are the really good things for you, the consumer. 

On the other hand, it supposedly gives you the ability to shop lenders more easily, but the problem is that you can’t understand that from the document.

First of all, we can’t give you a GFE until you have a property because if you get a GFE, we have to stand behind what we give you even if there is no property involved for 10 days.  What that means is that we “guarantee” certain terms and closing costs and thus rate when we don’t have enough info to do that.  It makes shopping for a lender harder because you’re futher down the line when we’re able to give you the info. Additionally, to cover ourselves from paying underdisclosed fees your GFE will always have a origination fee in it until you lock.  I haven’t done a loan where I charged an orignation fee in years, so I can’t give you something accurate until you lock your rate.  All lenders are in this boat if they are following the new rules.  Makes it more important to do business with an honest lender.

Then to top it all off, the borrowers who were used to the old GFE cannot understand the new GFE and if they can’t, then I’m not sure it accomplished all it was supposed to.   And, get this!  There is no place it tells you what your cash to close is or your new payment amount!  

Write your congress persons.  Or better yet, get them to buy a new house and get a mortgage–and see if they can figure out what they’ve done.

Anyway, we’ll get through it and hopefully someone at the top will figure out that we just needed to tweek what we had and blend it with the good stuff they did for you consumers.

Mortgage Rates thru March

Rate Alert…

The lowest rates of 2009 were driven down to their attractive levels because of the Fed’s Mortgage Backed Securities (MBS) purchase program. Home loan rates have an inverse relationship with the value of MBS. When these securities trade higher on the market, rates move lower and vice-versa. So when the Fed originally agreed to be a big buyer, it helped provide a market for MBS, which helped keep prices high and, as a result, helped push home loan rates low.

And while the Fed continues that program through the end of March 2010, the reality is that the Fed‘s “extension” was really more of a rationing intended to prevent home loan rates from spiking as the program is phased out. It’s sort of like weaning the market off of its life-saving treatment instead of forcing it to go cold turkey.

Already, some in the media have mistakenly reported the extension of the program through March as good news, telling consumers that rates will continue to decline, and remain low into the spring. This gives a false sense of security that homebuyers and refinancers simply cannot afford.