The Basics of Title Insurance

Purchasing a new home is probably one of the most expensive purchases you will make in your lifetime. Expenses most people consider are closing costs, inspector fees, and home insurance. One cost you might not think of is title insurance cost. 

Most types of insurance, like home or auto, protect the purchaser from future accidents. Title insurance is different in that it protects the purchaser from past home title issues. Title insurance provides valuable protection for homebuyers and lenders against legal claims, fraud, liens, easements and record-keeping mistakes. Another key difference is title insurance is a one-time fee at the close of escrow, rather than a monthly, quarterly or annual premium over the life of the policy. This one-time payment is considerably low relative to the value of the home you are purchasing. The cost of your title insurance could vary depending on your location in Alabama, the value of the property and the buyer’s mortgage details. Let’s take a look at how these title insurance costs are calculated.

How to Calculate Title Insurance Rates

Title insurance rates are based on the value of the home you are purchasing. Because of this, title insurance rates are typically shown in the form of “rate per thousand.” When calculating the costs of title insurance you simply multiply the home’s purchase price by the rate per thousand your title insurance company charges. 

It is important to check the rate that your title insurance company charges. Some insurance companies use a flat rate for title insurance while others offer a percentage-based rate or tiered rate.

Example: If you buy a $250,000 home and the rate per thousand is $6.00, your premium would be $1,500.

Title insurance companies may also set premiums on a tiered rate basis.

Example: If you buy a $250,000 home and the rate per thousand is $6.25 for the first $100,000 and $5.50 after that, your premium would be $1,450.

Differences In Title Insurance Premiums

Title insurance premiums don’t always follow specific flat rates or percentage-based costs. Here are a couple of situations where title insurance premiums differ:

• High-value home purchases: It’s just this simple: the higher the home value, the higher the title insurance will be.
• Refinancing a condo: Lenders require buyers to purchase a new policy during the condo refinancing process. Usually, a 20-40% discount will be offered from the original policy by your title company. The discount is based on jurisdiction, which is the condo’s value as well as the title insurance company’s rate per thousand.

How Home Value Is Calculated

Factors that affect home value calculations are the current condition of the home, comparative market value of the home and current market demand.

Generally speaking, homes with higher values will be more expensive to insure, regardless of the type of insurance policy. So, if you are purchasing a home on the upper end of the scale, be prepared to pay more for title insurance costs. 

Is the Policy for the Lender or for the Owner?

There are multiple variations of home title insurance. Two variations are lender’s policies and owner’s policies.

Lenders, like banks or mortgage companies, typically require the buyer to purchase a lender’s title insurance policy as a part of the transaction. This ensures their investment is secured and protected from possible problems with the title.

Owner’s title insurance policies provide protection for the person buying the home. The seller and lender might not require these for a sale to close because they will be unaffected if you end up responsible for title issues on your home. 

Contact Clarion For Your Title Needs 

We hope this gives you a better understanding of how title insurance is calculated. Clarion Title is happy to answer questions or provide more information. We want you to feel comfortable about the home buying process and get the answers you need to make the best decision for you and your family.

Contact us today for all your residential and commercial title needs.

This material is provided as a courtesy and for educational purposes only. Please consult your title professional for specific information regarding your situation.