What is title insurance, and why is it important?
Just when you think you've got your home purchase covered with a home inspection, mortgage insurance, and lawyer fees, another expense pops up: title insurance. While you may be rolling your eyes, title insurance is extremely important for every homebuyer to purchase and is necessary for a multitude of reasons.
What is title insurance?
Title insurance is an optional policy that can protect you from financial loss if issues come up with your property's title. When you buy a property, you're not just buying the physical structure—you're also buying the legal right to own and use the property.
A home’s title is the legal document that confirms the home’s ownership and also provides details about any liens (a legal claim or hold on a property until a debt or obligation is paid off) on the property. But, there can also be situations where the title of the home is flawed or incomplete, which can put you at risk for financial loss.
What does title insurance cover?
When you purchase title insurance, it provides coverage for as long as you own your property. Title insurance should typically cover you in the case of:
- Title fraud or forgery—when fraudsters steal the title of your home, sell your home and apply for a new mortgage against it
- Survey disputes, such as a neighbour attempting to build on your property
- Unknown title issues that prevent you from having clear ownership
- Liens against the title, such as unpaid property taxes or debts
- Other title-related issues may affect your ability to sell your property in the future.
What does title insurance not cover?
When purchasing title insurance, you and your lawyer should go through the insurance policy so you understand all of the details before purchasing it. Here are some scenarios that may not be covered by title insurance:
- Title issues that are known at the time of purchase
- Environmental issues, like flooding
- New issues discovered with a new survey or inspection
- Indigenous land claims
- Any changes to the property that you've made
- Anything to do with your property that doesn't exist in the public record.
What happens if I don't buy title insurance?
Although title insurance is not a requirement for every province and territory in Canada, it is a requirement for many mortgage providers and should be discussed with a lawyer. It's also important to note that title issues can have serious consequences—such as the inability to sell the property or get financing. You could even lose the home entirely.
How much does title insurance cost?
The title insurance premium is a one-time cost, usually between $250 and $500, in Canada. Prices will vary based on a few factors—like the value of your home, your insurance provider, and the province or territory you're purchasing in. But, if you can budget title insurance into your closing costs, you're protecting yourself from a variety of issues that could arise and cost you tens of thousands of dollars.
How do I buy title insurance?
When you complete your property purchase agreement, you can buy a lender's title insurance policy. An owner's policy is sometimes required at closing to guarantee that all parties are protected, but this is usually optional. It’s also important to keep in mind that if you decide to pass on title insurance for now, you can purchase it anytime in the future—even if you’ve owned the property for a number of years.
The bottom line
Title insurance is meant to protect yourself, and your investment in a property. While it may add some additional costs to the home-buying process, this financial protection and the peace of mind it offers make it well worth the investment.
If you've found a home you love and you're ready to apply for a mortgage, apply with Pine. If you have any questions about title insurance, a mortgage agent will be happy to assist you.