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When you borrow money from the bank to buy a home, your final expenses are higher than if you paid for the new house with cash. Examine the truth-in-lending statement, which every mortgage lender is required to provide to borrowers. If you don’t understand a listed expense, get an explanation before signing the loan contract. Among your additional costs, you might see mortgage points, for example, and title insurance.
Mortgage Title Insurance
A mortgage title insurance policy protects the beneficiary against losses if it is later determined that someone other than the seller owned the property at the time of the sale. Lenders require buyers to list the mortgage company as the beneficiary. Optionally, buyers can also pay for an owner’s title insurance policy to safeguard their personal investment.
How It Works
Before the mortgage closing, a representative, such as a lawyer or title company employee, performs a title search. The process is designed to uncover any liens placed on the property, preventing the owner from selling it until his debt is resolved. Another goal of the title search is to verify that the piece of real estate belongs to the person selling it. The searcher looks through electronic and paper records of the tax assessor, county courts, wills, divorces, deaths and other documents, looking for ownership information on the property being sold. Despite a thorough search, it isn’t hard to miss an important piece of evidence when information is not centralized. The mortgage title insurance protects against an investment loss in the event the sale is later invalidated because of a problem with the original title.
Mortgage title insurance costs the borrower a one-time premium. The required policy to benefit the lender lasts until the mortgage is refinanced. Every time a new loan contract is signed, the buyer has to pay for a new policy. On the other hand, an owner’s policy, bought to protect the buyer, provides coverage for as long as he owns the property, regardless of how many times the loan is refinanced. According to “The New York Times,” premiums are calculated as a percentage of the cost of the property.
The lender has three business days from the day you apply for a mortgage to give you a truth-in-lending disclosure. The document contains the amount the bank agrees to finance, the loan’s annual percentage rate and your payments over the course of the loan. In addition, the disclosure includes a good-faith estimate of the closing costs. Among them, you will find the likely cost of the mortgage title insurance. Use the good-faith estimate to prepare financially for the final cost of your home purchase. Note that if you don’t pay these expenses upfront, but arrange for them to be absorbed by the loan, you will pay interest on them, increasing your final cost.
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