Anytime you invest in a big ticket item — a flat screen TV, power tools, jewelry — you tend to hang on to your receipt, right? You know, just in case you need to show proof of purchase later on. So it makes sense that when you buy a home, you’d also want a receipt of sorts—a document that shows you are the rightful owner of your dream home and that all debts have been paid. In the real estate world, this proof of purchase is known as a title, and when you buy a home you “take the title” in the form of a deed that transfers ownership to you.
Getting the “receipt” to your home is an exciting moment. You not only become the title holder (proof that the home is really yours!), but you also add a new link to the chain of the title (a property’s historical ownership timeline), cementing your place in history as a property owner. The title transfer process is simple, but as one of the last steps in the process, it’s normal to feel intimidated (especially if you’re a first-time home buyer). So we’ll break it down for you.
Here’s what the title transfer process looks like from start to finish:
Step One: Secure Insurance From Your Title Company
Let’s set the scene. You’ve secured a mortgage, the offer on your dream home is accepted, and you now have 72 hours to put down your earnest money to make it official. You take some time to celebrate this milestone and then contact your lender to get the closing process started. Your lender is likely one of the first people who will mention the need for title insurance.
The reason? Title insurance—issued by a title company—means both you and your lender can rest easy knowing that the seller has the right to transfer the property to you as advertised (i.e. when all is said and done, you will walk away with the receipt you need to show proof of purchase). A title company will look for things that aren’t obvious to the untrained eye–like outstanding mortgages on the property (encumbrances) or unsanctioned changes to the property line—which, although rare, can jeopardize your ownership if not resolved before closing. While this might sound like yet another hurdle standing between you and your dream home,“the reality is, in most instances, the title to the property you are purchasing has been checked and insured multiple times before you,” says Mark B. Huntley, co-founder of credit building company Credit Knocks.
Securing a title company is pretty straightforward: Your lender or real estate agent can give you a recommendation for a reputable, local company when you secure your home loan. You can also ask family or friends in the area if they have a title company they like. Ultimately, it comes down to personal preference. You’re in the driver’s seat!
Step Two: Let Your Title Company Work For You
Once hired, your title company can move forward without much additional input (also read: time and energy) from you. Depending on the state you are in, either the title company or the seller’s broker will act as an escrow agent. They will hold your earnest deposit on the house until closing or release the money to the appropriate party if the deal doesn’t end up closing. The title company will also make sure all other obligations of the sale (like repairs) are met.
While you’re scheduling your home inspection and getting the property appraised, the title company will be researching the history of the property to find out if it has any unpaid taxes, open second mortgages, Home Equity Line of Credit (HELOC) loans or Housing Owner Association (HOA) fees. This is also called the Abstract of Title. Next, your title company will use this information to issue the title commitment (basically a promise to issue a title insurance policy for the property after closing).
If no issues come up, you can expect your title company to issue a title opinion letter, which describes the state of the property’s title, within thirty days. If your title company does find any issues exist—also referred to as “clouds on the title”—they’ll work with the seller to obtain the needed information or disburse the needed payments to settle any debts on the house by closing.
“The goal of the title company is to ensure that the title is free and clear,” adds real estate agent Rae Dolan.
Step Three: The Finish Line (For Real This Time)
Once it’s determined there are no issues with the title and all other instructions for closing have been carried out, the escrow officer will coordinate the funding of the transaction, the title will transfer and the home will now be in your name. At closing, you’ll sign and acknowledge that you have received your “receipt”.
Congrats, you are now officially—and legally—a homeowner!
This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, real estate, insurance, or investment advice. Bungalo always encourages you to reach out to an advisor regarding your own situation.