Most people sail through homebuying with their eyes wide shut because, well, those mountains of paperwork can get overwhelming. But when you look past the fine print, the purpose of one of the most important mortgage documents you’re going to sign is quite simple.
The title commitment explained
Your title commitment — which may also be referred to as your titlework or title binder — is a long document that will guarantee you title rights to your new property when all is said and done. What this means can vary from state to state. But in all states, a title commitment indicates that a property title is free and clear of defects and that title insurance can be obtained for it.
In short, a title commitment is a promise from the title company to issue a title insurance policy for your new home after closing.
Kevin Tacher, Florida title agent and CEO of Independence Title, Inc., says, “A title commitment is a preliminary insurance binder that outlines the requirements needed to issue a clear and marketable title. As well as any exceptions that would not be covered by the final title insurance policy. This document benefits the buyer so as long as they review it and understand its contents.”
Once you’ve chosen a property, your realtor will order a title commitment. The title company will mail you your own copy when the title commitment is complete. “It is normally the title company’s responsibility to send a copy to the buyer and/or lender prior to closing. In the closing process, there is nothing the lender should provide the buyer in the title insurance aspect,” Tacher says. “A buyer should make sure when communicating with their lender that they are also communicating with the title company throughout the closing process.”
So, all those terms, conditions, and exclusions you’ve been reading about in your title commitment will be the same found in your title insurance policy once you own the home. You’ll get the title commitment before closing and the title policy after.
We have 29 years of industry experience as a mortgage lender and are always looking to add to our growing team. Find out if there’s a place for you in the Cornerstone Talent Network.
6 ways to make a title commitment work for you
Normally, a title commitment is time-sensitive. You may have just a few days to review the document and consult with your loan officer, attorney, or realtor, if necessary.
Because easy is better. Download our free LoanFly app for the complete mortgage experience.
Consider these helpful tips before you sign:
1. Know what you’re looking for.
A title commitment is categorized into five different portions. Who is being insured, the amount of insurance, what is being insured, what is required to insure the title, and what is not insured. The parties being insured may include you as the buyer and your lender. The amount of insurance should cover your mortgage loan amount and the property owner’s sales price.
2. Separate Schedule A and Schedule B.
A title commitment is broken down further into two subsections. Schedule A is what has been submitted to the title company by the escrow officer, containing the commitment date, buyer and seller information, property price, and loan amount. You’ll find the exceptions in Schedule B, including the Covenants, Conditions, and Restrictions (CC&Rs) that we’ll explain more about below. Schedule B is the part of the title commitment that you’ll really want to read.
3. Take a look at the exceptions.
Yes, even with a title guarantee, there are always exceptions to the rule. Like rights of parties in possession, boundary issues, encroachments, easements not shown in public records, and more. You can cover your bases and remove some “standard exceptions” by purchasing Owner’s Extended Coverage (OEC) along with your policy. Tacher says buyers will normally see exceptions to the policy listed as easements from utility companies, as well as rights of use.
4. Take another look at the conditions.
If you’re buying a condo or a home in a subdivision, you may find their CC&Rs lumped into your title commitment by the title company. Give these conditions a thorough read and make sure they’re something you can live with. Examples of title commitment conditions include satisfying a mortgage at closing and providing an affidavit and warranty deed for a house. Your mortgage lender will fund your loan once loan approval, escrow, and title conditions are met.
5. Check the numbers.
This is the part where you may want to take a closer look at the fine print. Title insurance is intended to cover the home buyer and is paid for by the seller. So, most costs listed in the title commitment should be charged to the seller, with the exception of the additional American Plan Title Association (ALTA) policy that the buyer is responsible for purchasing. You can expect to pay $100 to $200 for the ALTA policy. Plus the price of any endorsements added to the title insurance.
6. Get it all in writing.
Here’s the good news: If you’re happy with your title commitment, there’s nothing else for you to do. But if you have concerns or would like to request changes, these need to be presented in writing to your realtor right away to pass along to the seller. The seller will also have a specified amount of time to respond (found in your contract) before the title commitment can be finalized. As Tacher explains, this is a buyer’s chance to raise any issues that may or may not affect the clear and marketable title to the property they’re buying.
Now that you understand your title commitment, check out our full mortgage glossary. You can find a list of the most commonly used mortgage terms here.
If you haven’t signed your title commitment yet, remember. This is still a time in the homebuying process when the ball is in your court. It’s important to look out for your own interests. If you have any questions about the lender title requirements, your loan officer can walk you through it and help you come up with new terms you’ll be happy with.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources deemed reliable but not guaranteed.