Title insurance and Home Insurance: Do Homeowners Need Both?

It’s a common question and one that deserves a little context.

Buying a home is an incredibly exciting event for any new homeowner, but with ownership of any property comes the need to protect it from a range of risks. These could include losses or damages to the home and fraudulent attempts to steal, transfer or use the ownership title. Homeowners and lenders can safeguard property from threats with the right insurance.

Many Canadians are familiar with two of the most common forms of insurance, home and title. But they may not be aware that they are two fundamentally distinct forms of coverage. This common misconception can be dangerous, and confusing the two has led many people to obtain one form of insurance, but not the other, leaving them vulnerable to greater risks down the road. The reality is, both forms of insurance are essential to provide comprehensive protection of your property.

The red-hot real estate market shows no signs of slowing down in the foreseeable future. As more Canadians become homeowners, it’s more important than ever for mortgage brokers to understand the difference between title insurance and home insurance to properly assist your clients, and the benefits of investing in both to protect what may be the largest single purchase of their lifetime.

HOME INSURANCE

Home insurance (also known as homeowners insurance or house insurance) protects a residence against losses and damages for many risks and can also include additional structures on your property. While home insurance comes in many forms in the market, the standard policy includes coverage that provides six types of protection:

1. Dwelling coverage: the most recognized coverage, which protects from natural disasters such as fire, wind and lightening. It is important to note that flood and earthquake coverage are not always covered and may need to be purchased separately.
2. Other structures coverage: protects sheds, fences and detached garages from natural disasters.
3. Personal property coverage: covers the items inside the home such as furniture, clothing, electronics and jewelry. Each policy will outline the maximum amount of personal property coverage that homeowners are entitled to.
4. Personal liability protection: pays for the legal defense if someone gets injured on the homeowner’s property. It is important to note that the policy will only pay up to the specified coverage limit. If legal costs or a settlement exceeds the coverage, the owner will be required to pay the balance out of pocket.
5. Medical payments coverage: provides protection if someone gets injured on the property and does not want to sue. This coverage will pay for their medical expenses such as crutches or prescription medicines.
6. Loss of use coverage: covers expenses such as a hotel stay and restaurant meals if the home becomes uninhabitable and needs repairs due to an event that is covered by the policy. Again, there is a limit to how much coverage is received for loss of use. Make sure your client checks with their insurance provider.

Home insurance is typically paid via monthly insurance premiums and the cost depends on various factors including details of the property and the province, or city. The average annual home insurance cost in Canada hovers around the $1,500-mark.

TITLE INSURANCE

Title insurance is a policy that provides protection by indemnifying against loss with respect to your ownership or true entitlement of the insured property. There are two types of title insurance: one protects property owners through an owner’s policy and the other protects lenders through a loan policy. A homebuyer receives title to a home once the previous owner has signed the deed and transferred the property over, and the homebuyer is registered in the government’s land registration system.

Many homeowners assume that title insurance is included within a home insurance policy. Because of this misunderstanding, an alarming number of Canadians today do not have title insurance. While home insurance protects homeowners from unexpected circumstances that occur on or against their property, title insurance protects the homebuyer from unexpected circumstances that affect the title to the property, such as financial loss from title fraud or other issues.

Title insurance also provides protection against loss from pre-existing issues, which may include:

1. Challenges to title by third parties.
2. Liens on the title due to the previous owner’s unpaid debts.
3. Encroachment issues, such as if your client’s backyard shed is technically on their neighbour’s property and needs to be removed.
4. Adverse matters that would have been disclosed on an up to date survey.
5. Title fraud, which occurs when a person uses false identification to get the title of a property in order to obtain a mortgage or sell the home without the homeowner knowing or impersonating you to obtain a mortgage.

Additionally, title insurance protects homeowners from title issues that may impact their ability to sell, lease or mortgage their property in the future. It also includes a “duty to defend” to protect both buyers and lenders against expensive litigation related to title issues.

Unlike home insurance, title insurance is a one-time premium that is typically purchased at the same time as the property. However, title insurance can be purchased even if your clients already own their property. The cost of title insurance in Canada averages around $250 but can range anywhere from a few hundred to a few thousand dollars, depending on factors relating to the property.

BE PREPARED

The best way for homeowners to protect themselves from expensive and unexpected costs associated with property ownership is to understand the various risks, and to invest in the right insurance coverage.

Without question, both home insurance and title insurance are incredibly important protection options that homeowners should always consider when purchasing a home.

A home is often your clients’ most valuable asset–make sure they protect it with home insurance and title insurance.

Insurance by FCT Insurance Company Ltd. Services by First Canadian Title Company Limited. The services company does not provide insurance products. This material is intended to provide general information only. For specific coverage and exclusions, please refer to the applicable policy. Copies are available upon request. Some products/services may vary by province. Prices and products/services offered are subject to change without notice.

Published By DLC Marketing Team

Your Credit Rating: The Four C’s

Buying your first home is an incredible step in life, but it is not without its hurdles! One of which is demonstrating that you are creditworthy, which all comes down to your credit rating. This is how lenders and credit agencies determine the interest rate you pay, or whether you will qualify for a mortgage at all.

As mortgage rules continue to change, the credit rating is becoming even more important as a higher credit rating could mean a lower interest rate and save you thousands of dollars over the life of your mortgage.

If you’ve never given much thought to your credit rating before, don’t worry! It is not too late and we are going to take through everything you need to know. The most important of which is that, in order to qualify for a home, you must have a credit rating of at least 680 for one borrower.

There are several attributes that factor into your credit score, and these are commonly referred to as the “Four C’s” and consist of: Character, Capacity, Capital and Collateral. Let’s take a closer look at each:

character

The character component of your credit score is essentially based on YOU and your personal habits, which comes down to whether or not it is in your nature to pay debts on time. Some of the components that make up this portion of your credit score viability, include:

• Whether you habitually pay your bills on time
• Whether you have any delinquent accounts
• How you use your available credit:
  • Quick Tip – Using all or most of your available credit is not advised. It is better to increase your credit limit versus utilizing more than 70% of what is available each month. For instance, if you have a limit of $1000 on your credit card, you should never go over $700.
  • If you need to increase your score faster, a good place to start is using less than 30% of your credit limit.
  • If you need to use more, pay off your credit cards early so you do not go above 30% of your credit limit.
• Your total outstanding debt

capacity

The second component relating to your credit rating is your capacity. This refers to your ability to pay back the loan and factors in your cash flow versus your debt outstanding, as well as your employment history.

• How long have you been with your current employer?
• If you are self-employed, for how long?

Don’t be confused as capacity is not what YOU think you can afford; it is what the LENDER thinks you can afford depending on the debt service ratio. This ratio is used by lenders to take your total monthly debt payments divided by your gross monthly income to determine whether or not you are able to pay back the loan.

capital

Capital is the amount of money that a borrower puts towards a potential loan. In the case of mortgages, the starting capital is your down payment. A larger contribution often results in better rates and, in some cases, better mortgage terms. For instance, a mortgage with a down payment of 20% does not require default insurance, which is an added cost.

When considering this component, it is a good idea to look at how much you have saved and where your down payment funds will be coming from. Is it a savings account? RRSPs? Or maybe it is a gift from an immediate family member.

collateral

Collateral is something that is pledged against a loan for security of repayment. In the case of auto loans, the loan is typically secured by the vehicle itself as the vehicle would be repossessed and re-sold in the event that the loan is defaulted on. In the case of mortgages, lenders typically consider the value of the property you are purchasing and other assets. They want to see a positive net worth; a negative net worth may result in being denied for a mortgage.

Overall, loans with collateral backing are typically more secure and generally result in lower interest rates and better terms.

There is no better time than now to recognize the importance of your credit score and check if you are on track with the Four C’s and your debt habits. A misstep in any one of these areas could be detrimental to your efforts of getting a mortgage.

If you are not sure or want more information, reach out to me today @ 250-716-1930 to chat more about this and take a deeper look into your credit score!

Published by the DLC Marketing Team