All about titles

As a specialist in mortgage lending I often get asked by friends and family, “Do I really need to get a title search?”  While my answer varies based on the type of property being purchased, I’ve found that most people struggle with the legal language surrounding the title search and title insurance process.  I thought I’d try to explain some of these items in layperson terms in my post this week.  


What is a real estate title?

A title is like a deed on a car. The title for your house is simply the document that shows what the property and everything on it are and what you can and can’t do with it.  An important thing to know about titles is that the title holder is often the owner (but not always!).  

What is a title search?
A title search is a process that is performed primarily to determine the answer to three questions:

1.      Does the seller really own the house and is he or she able to sell it legally?

2.      What can the owner or other people (like neighbors) legally do with the land: can they have businesses? Build fences? Walk on it with their dog? Leave a snowmobile in the front yard? 

3.      Is any money owed on the property for past taxes, mortgages, or is the property part of a deal between a previous owner and someone else? 

A title search may uncover a number of possible problems such as:

Real covenants – a legal promise to do or not to do something with the land.  Examples are having a business on it or building a fence, etc. If a covenant is broken then the person who breaks it may owe the person they promised money.

 

Easements – meaning someone other than the owner of a piece of property is allowed to use it. 

Servitudes – this is when there are rules made by a homeowners’ association, subdivision developer, or community about what you can and can’t do with the land.

Liens – the property is acting as protection against someone not paying a loan.

What can I do if I’m nervous about a title?

Purchase title insurance.  Title insurance will protect and pay back the owner if anyone brings a lawsuit against the title on their house (if someone is owed money or use of your property by another owner and it is tied to your land or house). 

Know Your Loan

When people are shopping for a mortgage, their first concern is usually the interest rate.  This interest rate is obviously a very important factor, but be sure to be aware of other aspects of a mortgage that can have an effect on the interest rate.  Below are some questions you should ask yourself before getting a loan - the answers may change your rate.


1. What is the loan term?  The “loan term” or “length of loan term” means the number of years you will have to repay the loan. Typically, mortgages are 10-, 15-, 20- or 30- year.  A shorter loan will often have a lower interest rate and can save you money over the long term, but your monthly payments will be higher.


2. Is it an ARM?  “ARM” stands for Adjustable Rate Mortgage, which means your interest rate will go up and down with the market rates.  Sometimes ARMs come with a “floor” – or low – and “ceiling” – or high rate pre-determined so you know how much your rate will change.  ARMs can also vary in the length of term, as fixed-rate mortgages do.  ARMs can be very appealing because the introductory interest rate will be so low, but you will want to carefully consider what will happen once the ARM term ends. If you will be able to pay off the mortgage before the ARM expires this may be a good option for you.  If you cannot, think about whether you will be prepared for what will likely be a significant jump in the interest rate.


3. Are there points? If you are buying any ‘points’ – or prepaid interest – this will make your interest rate lower.  One point is equal to 1% of the loan amount.  Pre-buying points can save you money but will require a little more money up front.   You will also want to think about how long you plan to be in the home you are buying as you want to be there long enough to realize the savings of the point(s) you purchased.

Before making a decision on a loan based on interest alone, make sure that you are comparing “apples to apples” with all of the loan terms.