A title search is an important part of the homebuying process and most lenders require a title search to be completed before they will approve a mortgage to buy a home. Read on to learn more about title searches.
Why are property title searches important?
A property title search offers you two important protections when you buy a home and the land on which it is built. The first is the assurance that the person selling you the home is the legal owner of the property and has the right to sell it to you. This helps guarantee you will become the legal owner of the property when the sale closes. A title search also helps protect you from becoming a victim of fraud, which can happen when a person who does not own the house pretends to be the seller in an attempt to cheat you out of your money.
The second protection is the assurance there are no liens or claims against the property. For example, taxing authorities may place a lien against a home if the homeowner does not pay their property taxes. This is important to understand because liens are associated with the property and not the person whose debts are the cause of the lien. In other words, when you buy a home with a lien against it, you are also buying that lien and become responsible for paying it.
A property title search can also find any easements that may affect the property. An easement gives a person who does not own the property the right to enter it under certain circumstances. Learn more about property easements.
Are title searches required for refinancing?
Lenders may require a property title search when you want to refinance your home. They may want to establish no liens or claims have been placed against the property since the last time it was financed. They may have other reasons for the title search too.
What do title companies do?
Property title searches are typically performed by title companies, who are experts in the process and understand which records they need to check and what information they need to confirm. Title companies can verify existing title abstracts and can also help homeowners obtain or recreate an abstract of title if they do not have one.
How do title companies perform title searches?
Title companies perform title searches by researching the property using public tax records and deeds. Sometimes these records are available online. Other times the researcher may have to visit the government office where the records are kept. Researchers study these records for evidence of unpaid taxes, liens, judgments, or mortgages against the property – any claim that might prove costly to you when you buy the house. Generally speaking, lenders will not approve a mortgage to buy a house that has these types of claims against it and the seller will have to demonstrate all the claims have been resolved before the sale can move forward.
Title companies will also research all previous deeds on the house to establish a "chain of title" working backwards from the most recent buyer to buyers in the past. They do this to make sure that ownership of the property was properly transferred each time it was sold. Chain of title research may discover a flaw in a sale of the property that happened decades ago, which might allow a relative of a previous owner to claim they are true legal owners of the property and bring a case to take ownership back. Establishing chain of title can help protect you against these types of problems. Learn more about the differences between deeds versus titles.
What is an abstract of title?
An abstract of title is the formal document containing the title history of a property. This history includes transfers of ownership, liens on the property, and any legal action or document that affects the property. The ownership details mention all of the people that have owned the property, how long they were in charge of the property, and how much it sold for. It does not usually note improvements made to the property or the home located on the property. An existing abstract of title is typically held by the current homeowner of the property.
Abstract of title vs. chain of title
Sometimes abstract of title and chain of title are used interchangeably, but there is a small important difference. An abstract of title is a physical, legal document. A chain of title is the information provided within an abstract of title; it does not always exist in a single physical document.
How long does a title search take?
Title searches can take 10 to 14 days according to Bankrate.com. It can take longer to research older houses, because there are more records than need to be examined.
How much does a title search cost?
The cost of title searches varies by state and by company. The cost of a title search is often included in the cost of a title insurance policy (see below). Title fees may be part of your closing costs. You may be able to add these costs to your mortgage loan amount or you may be required to pay them in cash at closing.
What is title insurance?
Title insurance protects you against any claims that may arise in the future – for example, a lien you discover after you buy a house. With title insurance, this lien might be paid by the insurance company rather than becoming your responsibility to pay. Title insurance companies often use an abstract of title when developing your insurance policy. Lenders often require you to buy title insurance for them as a condition of approving your loan. Homeowners can buy title insurance to protect themselves as well. Realtor.com estimates the average title insurance policy costs $1,000.00.
Talk to Freedom Mortgage about buying a home
Freedom Mortgage can help you buy homes with conventional, VA, FHA, and USDA loans. Would you like to learn more about your mortgage options? Call 877-220-5533 to speak to a Freedom Mortgage Loan Advisor or visit our Get Started page.