You just came across the ideal house for yourself and decided to purchase it immediately. The seller agrees on the price, and you are ready to move in, but your real estate agent calls up a title company. In simple terms, a title company acts as a third-party agent between the buyer and lender, performing due diligence on a range of essential tasks.
What Does A Title Company Do?
While you may not have heard about a title company before, what it does is pretty essential. A title company ensures that the ‘title’ is clear and there are no liens on the property. It also holds the money as a neutral agent, and most importantly, provides title insurance to both lenders and buyers. Let’s understand the role of title companies in a bit more detail.
Researching Your Title
The title company’s first job is to ensure your title is ‘clean.’ This is to confirm that there are no unpaid taxes or pending bills attached to the title and that the buyer will have no problem once they move in. This is usually done by inspecting the chain of title to make sure that the property is only owned by the person selling it and there are no prior claims on it.
Many lenders also require a property survey which is conducted by the title company too. The purpose of performing a property survey is to identify your property area and boundaries and make sure there are no encroachments. The property survey is helpful as the buyer understands the physical limits of their home, and it helps them make a better decision based on this information.
Insuring Your Title
Usually, the title company provides two insurance policies: lenders and buyers. This policy protects the lender and buyer from any shortcoming in the title. It also safeguards them from any claim that may arise after the deal is closed and the property is transferred to the owner.
A lender’s policy is mandatory to get a mortgage loan. It protects the lender’s financial interest in case of any claims that may arise after the property is transferred. It is paid by the buyer and typically costs around 0.5% of the purchase price. This insurance policy is paid once at closing, and it expires after the loan is repaid.
On the other hand, an owner’s policy is not required; however, it is highly recommended to buy one. This will protect you if someone files a claim against you, primarily because of unpaid taxes and overdue contractor fees. You will also have a safety net to pay your legal fees and recover your financial losses if you lose your home due to the claim. You can avail this policy by roughly paying 0.5% of the purchase price. However, you may get it for a lower rate if you buy both the lender’s and owner’s policy from the same company.
Managing the Money and Closing the Deal
It is also the title company’s responsibility to hold the money as a neutral third party and ensure a smooth transfer of funds to the different groups once the deal is closed. The money is usually kept in an escrow account and is disbursed only after assuring that the settlement is done.
Closing the deal is perhaps the most crucial part of any actual state transaction. The title company must carry it out smoothly. Several important documents are required for the settlement, including the deed, tax certificate, and closing disclosure. The closing disclosure includes information about closing costs and monthly payments. It is provided to the buyer at least three days before the closing for review. It is also the title company’s job to pay off different parties once the deal is settled and make the transaction legal.
Choosing A Title Company
Choosing a title company wisely is important, mainly because they can cost you anywhere between 2%-5% of your purchase price. Many factors can help you decide on a suitable title company, such as how long they have been in business and what clients they have served. You can also look at some technical aspects, such as how many claims they have had and their ratio of title claims to customers. These can give you clarity on which company to go with.
Title company’s play a vital role in the final parts of a real estate transaction, such as surveying the title, insuring against claims, and disbursing funds. A title company’s importance cannot be underscored both on the buyer’s and seller’s sides, and so, it doesn’t hurt to know what a title company is and how it functions.