What Is a Title Company and Why You Need One

What Is a Title Company and How It Protects Homebuyers

Protect your investment and ensure a seamless closing by calling in title pros.

By Mary Beth Eastman

Written by

Freelance writer, Credible

Mary Beth Eastman has covered personal finance for more than seven years and is an expert on mortgages, student loans, and insurance. Her work has been featured by U.S. News & World Report, Newsweek, and Money Under 30.

Edited by Valerie Morris

Written by

Valerie Morris

Editor, Credible

Valerie Morris has worked in personal finance for more than seven years. She's an expert on personal loans and mortgages.

Updated December 5, 2024

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

A home’s title is a legal document that establishes rightful ownership. If there is a mistake or defect in the title, the true ownership of that property can be called into question.

Title companies play an important role in ensuring that the title in a real estate transaction is clear, smoothing the transfer of ownership from seller to buyer.

What is a title company?

A title company ensures that a property’s title is appropriately documented and verified. It makes sure that there are no problems with the title that could prevent the sale from going through, and it can help settle any disputes about ownership.

“Title insurance is the cornerstone of secure homeownership, protecting property rights by ensuring your title is clear of issues like undisclosed liens or errors in the public record,” said Megan Hernandez, director of public relations & marketing at American Land Title Association.

Why do you need a title company in real estate transactions?

Real estate is a significant investment, and a title company helps ensure that a sale is legitimate. It verifies that the seller truly has legal ownership and that the property doesn’t have any liens or encumbrances (like another mortgage on it). Knowing the title is clean and accurate gives the buyer confidence that they won’t run into legal problems after the purchase.

A title company can also provide title insurance, which protects you in case a problem with the title arises in the future.

What services does a title company provide?

Title companies provide many different services to ensure a clean title. One of the most important is the title search process, which researches a property’s title to determine if there are any potential problems. But title companies also perform a variety of other functions during the sale process, all of which are focused on ensuring a smooth real estate transaction and homebuyer protection.

Service	Function
Title search	Research public records and title history to make sure no one else has a valid claim to the property.
Title insurance	Provides insurance that will defend your ownership rights in the future and cover legal costs if problems arise.
Escrow services	Holds closing funds in escrow (a special type of account) until it’s time to transfer them.
Closing coordination	Schedule the closing date with buyer, seller, and third parties such as real estate lawyers.

Title companies might take on other responsibilities, too, including:

Arranging a property survey
Writing an abstract of the title
Notarizing title documents
Recording the deed with the county recorder
Negotiating the release of a lien

What is a title search, and why is it important?

The title company typically conducts a thorough search on the title using public records at the courthouse or county recorder’s office.

“The title search helps establish a ‘chain of title,’” said Marcus Ginnaty, a spokesman for First American, an international title company based in California. The chain of title links each owner to the previous owner and requires significant expertise to establish, he said.

Without that expertise, it can be all too easy for a long-ago mistake to cause present-day headaches. Some problems a title search can turn up include:

Faulty deeds
Clerical errors
Forgeries
Unknown or undisclosed liens or mortgages on the home
Unpaid property taxes
Missing heirs

What types of title insurance are available?

There are two main types of title insurance: lender’s title insurance and owner’s title insurance.

Lender’s title insurance

This type of title insurance is required by the mortgage lender. It protects the lender’s investment from legal problems that may come up regarding the property’s title. Coverage typically lasts until the mortgage is paid off.

Owner’s title insurance

This type of insurance protects you as the new owner. It settles claims against your title that may come up after closing on a home. It typically pays for associated court costs and legal fees. Owner’s title insurance covers you for as long as you own the home.

How does a title company facilitate the closing process?

As the closing coordinator for a real estate transaction, a title company helps schedule the closing, also known as the settlement date. But title companies do much more than put the closing date on the calendar. A title company also:

Works with the lender to prepare the closing disclosure
Prepares settlement statements
Schedules document signings
Informs buyer of amounts due at closing
Collects and holds funds in escrow, including earnest money and closing costs
Coordinates the mortgage payoff
Submits documents for recording
Issues the final settlement statement

What is a title company FAQ

Can I choose my own title company?

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Federal law allows buyers to choose their own title company. You may save money by shopping around for a title insurance company instead of going with the mortgage company’s recommendation. You can find reputable title insurance companies by asking friends and family for referrals or checking with your state’s department of insurance.

How much does a title company charge?

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There is no one set cost for hiring a title company, and there are many different costs that go into the overall charge. However, the biggest charge is likely to be your title insurance premium, which can vary by state. In general, you should plan to spend around 0.5% to 1% of your home’s cost on title insurance premiums.

Is title insurance mandatory?

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If you’re getting a mortgage on a home, the lender typically requires lender’s title insurance. Owner’s title insurance isn’t mandatory, but it’s a good idea if you want to protect yourself against future claims on the property.

What happens if a title issue arises after purchase?

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If a problem comes up after you’ve purchased and closed on the house, and you have title insurance, contact the title company right away. Find out what steps you need to file a claim, and what documentation you’ll need to provide.

After you file the claim, the title company will investigate and identify potential resolutions. If your claim is covered by your policy, the title company can address the issue, paying your legal costs or reimbursing you as necessary.

How long does it take for a title company to clear a title?

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It can take a couple of weeks to conduct a title search and cure any defects that are found. National Title Group estimates it should take about two weeks to clear a title, depending on factors such as the type of property.

Meet the expert:

Mary Beth Eastman