A title company is an independent, unbiased, third-party company who acts as a fiduciary intermediate during the home loan process. The company comes into play during the setup stage when a title is ordered.
Here is a overview of the mortgage loan process, if you’re looking for a clear outline. In short, the title company holds and disperses everyone’s money. A title company will do the title search and issue the title policy which makes sure you will be the sole owner of the home. They will also walk you through all the paperwork the day of closing.
How Do I Select A Title Company?
Both homebuyers and refinancers need a title company, however this page mostly addresses homebuyers. Fortunately, you won’t have to sift through title companies to select one. If you’re a new homebuyer, your realtor will arrange for a title company to guide you through closing. If you’re refinancing your home, the Mortgage Mark team will select a title company for you.
What Does a Title Company Do?
The title company agent (a.k.a. settlement agent) runs a title search. A title search checks for anything negative on your title. This could include mortgage liens, unpaid taxes, mechanic liens, all of which cloud your title so it isn’t “clean”. All of this is to validate that you have a clean title, so once the buyer purchases the home, they will be the sole owners.
The settlement agent also manages the escrow account, which holds the funds for closing on the home. The seller, buyer, lender and real estate brokers all depend on the title company to remain unbiased so this money only goes towards the home. The funds include option money, usually $100 for the seller, and earnest money, usually 1% of the purchase price, to go to Title. See Acceptable Funds for Closing on our closing overview.
What’s Title Insurance?
After validating the title, the title company issues a title insurance policy. Title insurance is insurance that protects the lender and the buyer. In the event that dispute arises over ownership of property, insurance protects them both. Lenders require that you buy a title policy so they are paid back in the event that a flaw in the title is discovered after the purchase of the property. The owner’s policy ensures the buyer is protected, and while not required, we highly recommend it. Generally the buyer pays for both. However, we suggest talking to your insurance provider to see about a discount if you “bundle” the lender and owner policy.
What Happens at Closing?
At closing, the mortgage office (i.e. lender) sends the appropriate documents to the title company. The company writes up the closing disclosure (CD) and produces the funding documents, tax certificates, title insurance policy. The settlement agent will walk you through all the documents, which will take about an hour. Then, they collect checks and double check all documents. Lastly, the agent distributes the money accordingly. The lender’s check of money to be lent is received, the buyer’s down payment is given to the seller, and lastly the appraiser and Title themselves get paid.
What does a Title Company Charge?
Great question. Unfortunately, we can’t pinpoint a number. First, the cost depends on the size of your loan. (Hot Tip: get title insurance for the WHOLE price of your home. You wouldn’t insure half of your car, would you?) Secondly, the cost depend on what state you live in. Remember that you will be paying at least 1% of the purchase price to the title company. Read our blog on closing costs for more information. If you’re purchasing a home in Texas, you can reference the basic rates here.