It is common for people buying real estate to have a little sticker shock when they first see their settlement statement. They offered hundreds of thousands of dollars as a purchase price for the property in question, and now they suddenly have to pay thousands of dollars more than that amount.
First-time home buyers may find expenses of closing costs to be particularly shocking. They often amount to between 2% and 5% of the total price. Some closing costs are inevitable, while others are somewhat negotiable. It is also possible for the professionals who prepare your settlement statement to make a mistake when inputting the details about how much different services cost.
If there are two title insurance policies on your settlement statement, is that a sign that the person preparing it made a mistake?
Both you and the lender need coverage
Although it may seem unfair to have to pay for two different kinds of insurance for the same theoretical risk, you aren’t the only one who could lose money in the event of a title claim against the property. Your lender could also lose all of the money that you have yet to repay on the mortgage if someone brings a viable title claim against the property.
You therefore have to pay for a policy that will cover what your lender finances and another one for what you invested in the property. In theory, you might be able to cancel your own policy to save money, but you would still need to pay for the lender’s coverage.
When you consider all that you stand to risk in the rare event of a title claim, paying for the coverage and the peace of mind it provides may be worthwhile. In fact, some buyers even purchased enhanced policies that protect them from a broader spectrum of title issues.
First-time home buyers are often unaware of exactly how much they will have to pay in closing costs until after a seller accepts their offer, at which point they may feel like they have to scramble to gather the necessary funds. Making sense of the financial obligations involved in a residential real estate transaction can help first-time home buyers and people back on the market for the first time in years understand what to expect and make sense of the process.