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Do you need title insurance if you don't have a mortgage?

by Emma Scott on 11 May 2021

When you’re buying a home, you’ll probably find that your closing costs seem daunting. Buying a house, real estate fees, and other premiums may feel like a lot of money to spend at one time! If you're looking to reduce the costs of buying your home, you have likely considered whether you can opt out of the title insurance premium included in your closing costs.

In this article, we will answer all of your questions about title insurance so you can make the right decision for your future investment. You have skipped the mortgage, so should you skip a property title too?

Title insurance vs. home insurance

Title insurance vs. home insurance

Many first-time home buyers can confuse title insurance with home insurance. They may think that the terms are interchangeable, but they’re not. Both home insurance and title insurance have a unique purpose in protecting your home and property.

Home insurance

Home insurance policy covers any loss and damages to your home and other structures on your property. And, unlike title insurance, home insurance is paid monthly like mortgage payments.

Home insurance coverage extends to various types of protections included in your insurance policy. Each type of protection will safeguard your house and other structures from specific types of damage and loss. For example, if your house or garage were damaged by a fire, any losses would be covered by filing a claim for Dwelling coverage. If your house is broken into and items are stolen, Personal Property coverage will cover the cost of the items stolen.

Title insurance

Title insurance coverage does not extend to the losses or damage covered from home insurance. The same goes for home insurance and property issues. Because of this, it is important to purchase both home and title insurance.

What is title insurance?

When you buy a home, you are buying more than just the property itself, you are also buying the title - the legal term for the right to own a piece of land. This is applicable to homeowners who live in a house, condominium, apartment building, etc. Anyone has the right to purchase a title to their residential property.

title insurance

A real estate lawyer will encourage any buyer to purchase title insurance because it protects a buyer's property and their ownership over your property from third-party infringement. To put it simply, owning the title to your residential property will protect you as homeowners from other people or organizations claiming an interest in your property.

Buyers have the option to purchase a title when they pay their down payment and other closing costs for their house. If an owner chooses not to purchase a title when they first purchase their home, the option is always available to them at any other point in time.

When a title is bought in Canada, it is registered in the government's land registration system and immediately put into effect. The length of coverage is determined by whether the owner chose lender's title insurance or owner's title insurance. Only one of these insurance policies is applicable for homeowners without a mortgage.

Owner's and lender's title insurance policies

There are two types of title insurances: lender's title insurance and owner's title insurance. Each one protects a different contributor and their claims to a piece of property in the event of a title fraud or another error.

Lender's title insurance policy

Lender's title insurance protects mortgage lenders' interests. This policy is available solely to lenders like banks who provide monetary support to someone buying a house.

Many banks have a loan policy that requires lender's title insurance to secure a mortgage loan. This protects the bank's interests in case a property's mortgage becomes invalid.

A lender's title insurance policy is not required if you do not have a mortgage loan with a bank or other lender. This allows buyers to jump right to homeownership, skipping the costly mortgage and lender policy.

Owner's title insurance

If a property owner chooses to buy title insurance, they can only pick owner's title insurance - they cannot choose to opt for a lender's title policy. Owners must select what type of property they are purchasing ownership over based on two sub-categories: residential and commercial. Each coverage will protect an owner's unique investment.

owners title insurance

The residential property title insurance covers almost any property you can live in, including houses, condominiums, apartments, cottages, and such on. Commercial title insurance coverage extends to shopping malls, stores, rental units, apartment buildings, and more.

Whatever type of property, owner's title insurance protects an owner's rights to their property. The coverage will last as long as the individual owns the property, and can sometimes be passed down to another person through inheritance.

The price of title insurance is determined based on the location, property type, and value. This can cause prices to vary widely from location to location. Buyers in the city will likely notice significantly higher prices than those in rural areas. According to Canadian Mortgage Trends, title insurance starts at anywhere from $150 to $350. This could be a grave underestimate for the 2021 housing market.

If you are interested in buying a new home in 2021, you may find that the cost of a title is much higher. The booming housing market has sent house prices sky-high - including their title price.

Title insurance policies & protection

Title insurance is not a requirement when you buy a house in Ontario. Despite this, home owners carefully consider whether they should buy a title to their property. Although the premium may seem like an additional trivial cost added to their purchase price, it can be a long-term investment.

If you buy title insurance, you are buying the ability to protect your home and property from any future issues like fraud, encroachment, or worse - liens. Titles protect owners from the loss of their home or property and other similar claims.

What does title insurance cover?

There are many issues that title insurance covers. Some examples of possible policy coverage are:

  • Unknown title defects that could prevent you from having clear ownership of the property
  • Encroachment issues where another property owner attempts to occupy or own part of your land without your permission (e.g., survey errors)
  • If someone attempts to claim ownership over your land in an act of title fraud, your title documents inhibit them from doing so
  • If previous homeowners did not pay their contractor and there is a lien - legal claim of rights over assets - of your house, title insurance will protect your right to your new home and property
  • Any easements that are planned or found to be on your property in a survey (e.g., a public sidewalk or electrical box that gives someone else the right to access your property for a specific reason)

An owner can trust that their title insurance will protect against a title defect and protect their ownership over their property.

title insurance policy

What does a title insurance policy not cover?

While almost all title issues are covered by title insurance, there are several outliers that cannot be covered by a title insurance policy. For example, any land claims initiated by a First Nation or other Indigenous community over your property are not covered by title insurance. Your title insurer cannot ensure your ownership over your land.

Similarly, if a survey finds that your property size is that originally thought, you cannot use your title to refute your right to the space that you thought was yours.

Other things title insurance policy will not cover are:

  • Environmental hazards
  • Any title defects made aware to you at the point of sale
  • Non-legal issues like encroachments or land occupation (unless brought to court)
  • Damages, theft, or any similar losses

How to buy one

Typically, homeowners need to confirm what title insurance company is recognized by their mortgage lender prior to purchase. If you do not have a mortgage, your choice of title insurer is up to you.

There are many trusted title insurers that can sell and create title documentation for your new property. Chicago Title Insurance Company, FCT Insurance Company Ltd. (also known as First Canadian Title), Lawyers' Professional Indemnity Company (TitlePLUS), and Stewart Title Guaranty Company are the most prominent companies specializing in title insurance in Canada. Their professionals can provide any extra information to buyers looking for a title for their new property.

Every owner should buy title insurance

While, ultimately, the decision is up to the buyer, almost every real estate lawyer and financial advisor will encourage a buyer to purchase title insurance for their new house or condominium. The purchase may seem daunting, but it could save you a lot of cash in the long run.

If you skipped the bank lender, mortgage amount, and other hassles of taking out a home loan, the cost of a property title may seem like another added expense. It's important to remember that a title protects your rights and your property from third-party infringement. It is not like other permits - it offers lifelong coverage for your commercial or residential property.

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