Tag Archives: Title Insurance


What Every REALTOR Should Know about Title Insurance

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Every real estate agent understands that buying a home is overwhelming for many clients. There’s a mountain of paperwork to sign and different fees associated with the closing process. All of these things can confuse even an experienced buyer.

Title insurance, or an owner’s title policy, is often misunderstood by home buyers at closing. Buyers, especially first-time home buyers, look to real estate professionals as experts in the industry. It’s important to be the advisor to your clients and help them understand the value of an owner’s title policy and the risks that can arise without it.

What is Title Insurance?

Title insurance, or an owner’s title policy, is a policy that protects the home buyers’ property rights. For the same reasons that the bank requires a lender’s insurance policy, a home buyer obtains an owner’s title policy to protect their legal rights to the property.

How Does It Protect Your Client?

Here’s an example: Your client purchased a new home from a builder, but the builder failed to pay the roofing company. That roofing company wants to get paid, so it files a lien against the property. Without an owner’s title policy, your client is responsible for paying that debt. This is just one example of how an owner’s title policy protects a home buyer from a variety of significant risks, such as unknown heirs, illegal deeds, forged documents, and much more. With an owner’s title policy, a buyer’s property rights are protected while they own the property.

The Value of Title Insurance

The good news is that an owner’s title policy financially protects home buyers for as long as they own the home. For Florida buyers, the price of an owner’s title policy depends on the sales price of the home. Florida’s promulgated rate is $5.75 per thousand, up to $100,000, and $5.00 per thousand thereafter, up to $1 million.

The party that pays for the owner’s title insurance policy varies from state to state. In Florida, the seller typically picks and pays for the owner’s title policy. However, that can change depending on which county/area the property is located.

Fees can add up during the closing process, but this one-time fee gives home buyers peace of mind. After all, the home may be new to your buyer, but every property has a history.

How Title Insurance is Regulated

Each state regulates its title insurance costs, and the Consumer Financial Protection Bureau (CFPB) regulates closing and settlement services to protect consumers from unfair practices. Established in 2011, the CFPB educates consumers about making smart financial decisions and holds companies accountable for any abusive or discriminatory procedures.

 

Title insurance can be confusing and seem like “just another expense” during the closing process. But, what’s the price of your buyer’s peace of mind? As a real estate professional, educating yourself and your clients on title insurance, the protections it provides, and the risks of going without it is vital.

Understanding Your Loan: Cash And Transaction Summaries

Page 3 of your Closing Disclosure will compare cash requirements from your Loan Estimate to your actual final charges. If “Did this change?” is “YES” notes for changed sections should be provided.

The bottom line final “Cash to Close” is the money you will need in-hand in three business days.

If your transaction has a Seller the summary table will show a line by line comparison of Borrower to Seller transaction details.

If there is no Seller you may see a Payoffs and Payments table instead.

Review the summary tables to understand the transaction and your financial commitments at loan consummation.

Understanding Your Loan: Closing Cost Details

Page 2 of your Closing Disclosure details specific closing costs.

Section A includes: Origination charges collected by the lender Origination fees paid to brokers, loan officers or other parties and Discount Points – prepaid interest. These figures should match your original Loan Estimate.

Section B covers services for which you could NOT shop. The total of these should be within 10% of the total from your Loan Estimate.

Section C covers services you could shop. If you chose providers from the lender’s written list, costs should be within 10% of Loan Estimate. The set of services you can shop may vary on different loans.

The Recording Fees in Section E should be within 10%; other costs in E, plus F, G and H, may vary from your Loan Estimate without tolerance limits.

This page will also break out the costs YOU will pay, before or at closing; the costs the Seller will pay, any costs paid by others and any credits from your Lender.

Understanding Your Loan: Closing Disclosure Page 1

The first page of your Closing Disclosure documents:

  • The Loan Amount – the total you will actually borrow
  • The Interest Rate – which does NOT include the fees factored into the APR on Page 5

If this loan has a penalty for pre-payment or includes a balloon payment Page 1 will summarize the terms.

Projected Payments will show the chief cost components – Principal & Interest, Mortgage Insurance and estimates of your Escrow Payments over the life of the loan. You may see different columns for different periods if changes in terms such as mortgage insurance change payment totals.

Closing Costs summarizes your loan closing expenses, and Cash To Close adds the additional amounts due to give you the cash balance you will need in 3 business days.

Click here to get more information on page 2 of the Closing Disclosure.

Your Rights And Rules For Closing Disclosures

The Closing Disclosure documents the actual terms of your loan transaction. You should receive it no later than 3 business days before consummation. It must be in writing – paper or digital.

If the loan terms or costs change prior to consummation, your lender must provide a corrected disclosure AND an additional 3-business-day waiting period until loan consummation.

Waiving the 3-day waiting period is only permitted in certain circumstances, and only when the waiting period would cause a bona fide personal financial emergency.

Understanding Loan Estimate Comparisons

Page 3 of your Loan Estimate includes measures to help you compare loans.

“In X Years” shows the total amount you will have paid in that time, and the dollar amount applied to your loan principal. The ratio between total paid and principal reduced may change over time.

The APR shows interest PLUS fees as an annual ratio – APR is the actual percentage this loan costs per year.

The TIP figure relates the interest you will pay over the life of the loan to the loan amount. For example – a TIP value of 25% on a $100,000 loan means you will pay $125,000 – $100K principal plus $25K interest – over the life of the loan.

Calculating Your Cash To Close

Page 2 of the Loan Estimate provides the current ESTIMATED cash to close. Some costs will stay the same between estimate and closing. Some will change.

  • A – Origination Charges – should match.
  • B – Can’t Shop – 10% Tolerance
  • C – Can Shop – no tolerance limit, BUT IF you select a provider from your lender’s list their actual cost should be no more than 10% greater than the estimate.
  • E – Recording Fees are also subject to 10% tolerance
  • F – Prepaids, G – Initial Escrow and H – Other, such as Owner’s Title may vary from the Loan Estimate without tolerance limits.

These estimates of closing costs plus loan details, Down Payment, Deposits Credits and Adjustments are used to calculate your estimated cash requirements when the loan finally closes. Consider the possible changes and tolerances when evaluating a loan decision.

Understanding Your Loan Estimate: Other Costs

Real estate transactions require taxes, certain pre-payments, and escrow funding.

Recording fees are charged by government agencies for keeping legal ownership records, while “transfer taxes” may be imposed by states, counties and municipalities on real estate ownership transfers.

Prepayments may include homeowner’s insurance premiums on the property mortgage insurance, if required property taxes for a period of months in advance, and prepaid interest, typically for the period from closing to the first mortgage payment.

Escrow funding may also be required against future annual charges for homeowners insurance, mortgage insurance and property taxes.

Title insurance on YOUR legal ownership – “Owner’s Title Policy” – may be designated as optional, which only indicates that it is not required by this creditor.

Some of these “Other Costs” may vary substantially between Loan Estimate and Closing Disclosure ask your lender about the tolerance rules or watch the video “Could My Loan Cost Exceed The Loan Estimate?”

Understanding Your Loan Estimate: Services You CAN Shop For

These costs are paid to outside parties and YOU are free to shop and compare providers for a variety of services. These might include pest inspection, or  a survey to verify property lines or a range of Title-related services.

Title services might include:

  • a Lender’s title policy, which protects their legal interest in their loan collateral- usually the property itself
  • settlement agent fees, paid to the individual or company responsible for facilitating the final transaction
  • Title Search, which clarifies and documents legal ownership of the property
  • a title insurance binder, which allows potential future use of the current title search results, conditions and exclusions for a short period to lower the cost of future title insurance.

If you select service providers from the list provided by the lender, their fees cannot change by more than 10% between the Loan Estimate and the final Loan Disclosure. If you select other providers the lender is not responsible for changes in those costs.

Understanding Your Loan Estimate: Services You Cannot Shop For

These costs are paid to outside parties, not the lender, but you don’t get to choose them. They may include:

  • appraisal, which puts a value on your property on the lender’s behalf
  • a credit report on you
  • fees to assess flood risk of your property, or for ongoing monitoring of flood zone changes related to your property
  • tax monitoring to keep track of your property tax payments
  • tax status research to assess the state of tax payments on the property.

While you can’t shop for these services, the price for these services in your final loan disclosure MUST match the price on the Loan Estimate; items in “Cannot Shop” have 0 tolerance for change.