What Is a Title Company and What Do They Do?
Home buying is complicated, and in order to do it successfully (not to mention legally), a number of professionals will need to play a role in the real estate transaction. These include a mortgage lender, a loan officer, a real estate agent, an attorney, an appraiser, a surveyor, an inspector, and a title company.
That last one is often the most confusing for a new homebuyer, as it’s not something encountered in other areas of life.
What exactly is a title company? Why do buyers need one? What do they do, and how much do their services cost? Let’s break it down.
What is a title company?
A title company is a third-party agency that focuses on property titles — the documents that outline who legally owns a piece of property. When you buy a home, the title company’s job is to research that home’s title history, including who owned it and when. This is referred to as the chain of title.
They also make sure there are no liens against the property. A lien — or legal claim to the home — occurs when a homeowner fails to repay a debt, like their property taxes, income taxes, or even a home repair bill. These debts follow a property until they’re paid off and can complicate a home purchase significantly (not to mention make it more expensive.)
Title companies conduct property surveys, too, making sure the home occupies the proper space as indicated on the title. If it encroaches on a neighbor’s land (or vice versa), it could pose ownership problems later on.
Finally, title companies also offer title insurance policies, which protect the lender, buyer, or both. We’ll go more into this below.
What is title insurance?
Title insurance protects you if there’s an issue with your property’s title (or ownership) after you close on the home — things like missing or undisclosed heirs, a lien or unpaid taxes, cases of fraud, etc. In these cases, the insurer would step in and cover the financial and legal damages up to the policy limit.
Both lenders and buyers can get a title insurance policy, but most lenders only require the former. In both cases, you, the buyer, will pay for the policies. These usually cost a one-time fee of around $1,000 each so take this into consideration when adding up closing costs. This is an important part of your real estate transaction, so choose your title insurance company carefully.
How much do title services cost?
Title insurance is only one expense that a title company comes with. You’ll also need to pay for the title company’s title search, survey, and other services, too. There may also be an administrative fee.
These title service costs will vary depending on where you are and the title company you choose, but a title search alone is usually a few hundred dollars. For a full breakdown of the title costs you can expect at closing, see your loan estimate.
Can I choose my title company?
You can technically choose your title company, though your agent might or, in some cases, the seller may, too. There’s no hard and fast rule for this.
If you do opt to choose your own, choose carefully, as your title company will play a very important role in your home buying journey. Make sure to consider experience, differences in title insurance policy, past customer reviews, and their locations before picking who to go with. You can also ask friends and family for title agency recommendations if they’ve recently bought a home.
Will I work directly with my title agent?
There may be times when you need to work with your title agent directly, but in many cases, you won’t meet them until the closing table, if at all. If you use a real estate agent, they’ll usually be the go-between for you and your title agent. Your loan officer will do this as well.
Closing your loan
Title companies typically handle your loan closing, too. Sometimes, this is called the “settlement.”
In many states, you may actually go to the title company’s office in order to finalize your loan. When this occurs, your title agent or another title representative is usually the one to lead your closing appointment. They’ll walk you through the closing documents, closing costs, and show you where to sign, etc.
The title company will also handle the escrow process, which is when your funds are held in a third-party account until both versions of documents (buyer and seller) can be finalized.
The bottom line
Title companies play a big role in the home buying process, and lenders work closely with them along the way. Title issues can cause problems and delays in your home buying process, so it’s important to know how all you can about these companies. Do you have more questions about a title company’s work? Need recommendations for experienced title companies in your area? Reach out to an Embrace Home Loan office in your area today.