As a borrower, there are several important steps to be aware of when it comes to the mortgage process. First and foremost, many first-time homebuyers think the process begins when they find the home of their dreams  - but this is rarely the case. Instead, buying a home typically consists of six stages: getting pre-approved, shopping for a home, loan processing, underwriting, and closing.

Of these steps, closing is one of the most important stages to understand before jumping into the housing market. As the final step in the mortgage process, closing is basically the stage in which both parties (the buyer and seller) sign the necessary documents to make the home sale official. It is also the time when closing costs are due. Each applicant will therefore be required to pay for their credit report, appraisal and title insurance transactions, in addition to several prepaids. But what is the purpose of title insurance and why is it required? Here’s what you need to know.

Basically, title insurance ensures that nobody else has a claim to the property. Attaining this type of insurance typically requires a two-step process. First, an attorney will search through property records to check for undisclosed heirs to the property, clerical errors in prior paperwork, unknown liens, and any other type of error in title records. If no mistake is found, then the attorney will confirm that the seller owns the property and has the ability to sell it.

Next, the attorney will meet with an underwriter to draft an insurance policy for the buyer’s title. This will not only defend the new owner against others from challenging their title, but will also ensure that the borrower receives compensation for equity if they lose in court.

Just as there are two steps to acquiring title insurance, the borrower will need two policies to cover both themselves and their lender. Many companies will even provide a substantial discount to those who buy the two policies together. If you’re not sure which title company to use in order to make this purchase, discuss your options with your lender.

For more information about what you need to know about title insurance, or to learn more about closing costs, contact one of our mortgage specialists today.