Buying a new home is a stressful and complex process. This is the most expensive purchase most of us will make in our lives, and yet it is also the one that often leaves us feeling least confident. One of the most frustrating and perhaps misunderstood aspects of the process? Title insurance.
And as it happens, title insurance is also a costly (but integral) part of this process.

Many homebuyers are completely unaware that they need to get title insurance until they reach the end of the buying process. Just as you can see the end in sight and you’re ready to get things over with, you need to sort out another complex aspect.
The cost of title insurance can run into the thousands, often well above $2,000 in certain states. This might not seem like a lot on top of a $450,000 home – but it’s certainly not pocket change! And unlike the cost of the home, many families will opt to pay this amount up-front.
However if you’re an Iowa resident, most US citizens are paying literally 20 times as much as you for the same insurance! Why? Because there’s a state-run title insurance agency (Iowa Title Guaranty), which provides the exact same service for a flat rate of $110 for mortgages all the way up to $500,000. As the median house price of that market is $131,600, this is more than enough to cover most transactions.
How Title Insurance Works
So how did we get here? Well, title insurance began in the middle of the 19th century and was initially pitched as a way to certify a person selling land actually owned that land.
Today though, title insurance protects against errors in public records, unknown easements or liens, and missing heirs about a specific property. In other words, it is there to ensure that when you buy property, you then actually legally own the property and no one else can claim they have rights to it. While it might not be an issue for the vast majority of people, it’s the kind of thing you simply can’t afford to go without: the consequences of not getting it are potentially vast – the FBI estimates title fraud was a 1.6 billion dollar problem in 2018.
What’s backward about this though, is that it is really the lender that is at risk more so than the buyer – it is their money after all, and it should be their responsibility to ensure that they are going to get repaid (and that you are getting the value that you pay for). Despite this, most lenders won’t buy the title insurance themselves, but will rather force borrowers to buy it on their behalf.
Many people are used to paying large figures and ongoing amounts for insurance. Most of us pay health, life, and car insurance. Unlike these types of insurance however, title insurance is designed to protect against things that happened in the past! It is protecting against errors or missed details in documents that are readily available.
Thus, the issues surrounding title insurance can be found and corrected with routine diligence that really doesn’t cost the professional.
Demonstrating this difference, we can look to the claim rates. Though home insurance and car insurances companies will pay over 80% of their premium on claims, most title insurers will only pay about 3-4% of that premium. That is a lot of profit for the company, even when it is required to pay out.
Why Title Insurance Remains So Expensive
With all this being true then, why is it that title insurance is still so expensive?
It comes down to many factors, but part of the issue is the market saturation of four companies:
- First American Title
- Fidelity
- Stewart
- Old Republic
These four companies hold 85-90% of the market share! That makes it extremely easy for the companies to control pricing, and it simply isn’t in their best interests to lower the status quo where rates are typically structured as dollars per $1,000 of mortgage debt. This can vary from state to state, with twenty states using a “file and use” system allowing insurers to choose their own rate (with the state having the authority to reject it). Sixteen states have title insurers seek prior approval for the rates they charge, while ten do not require any form of regulation.
The Solution
So what is the answer? State-run title insurance, of course.
In many other countries, a system called Torrens title is used instead. Here, the state will keep a definitive and undisputed record of land ownership, which will be kept up-to-date. This ensures there is no need for the insurance at all.
Unfortunately, it is unlikely that the US would use such a system. The US is not known for adopting the policies of other countries, and neither is it likely that states would completely eliminate the private industry. But there’s simply no getting away from Iowa’s vastly superior system.
As far back as 1947, Iowa actually outlawed title insurance. But because big names in secondary mortgage like Fannie Mae and Freddie Mac required it, the state compromised in 1987 to create its own Iowa Title Guaranty. This was the only title insurance entity that was authorized to carry out business in Iowa.
Should a lender wish to force a borrower to buy title insurance on their behalf, the only option they have is Iowa Title Guaranty. While other options now exist, most Iowa residents choose the system to get their own mortgage. There is simply no reason to use anything other than this option, given the fantastic relative value that it offers.
The other difference is that Iowa Title Guaranty demands that any issues that arise be resolved before closing. This is one of the reasons that claim rates are much lower than title insurance companies from other states, and it can save buyers a considerable amount of hassle, stress, and lost money.
So here is how the system works. In most cases, instead of having title insurance agents, Iowa will certify and abstractor to carry out the records investigation. Private practice attorneys will review this work and then issue an option on that basis. The abstract is a chronical of all the transactions related to the property and this will be updated during the time of the purchase. It’s also possible for a single professional to act as both an abstractor and an attorney.
Iowa Title Guaranty will pass $60 of the $110 that it charges to these professionals, but no money will return to the lender and there are no kickbacks. Excess revenue is then fed back into the system – funding the likes of affordable housing initiatives and helping first-time home buyers. This ultimately feeds into the market and improves living conditions and quality of life.
And again, this is all possible because the actual cost of researching title insurance is so low.
So we can only hope that more states eventually see the light and follow suit. There are those that are making noise. New York’s legislature recently considered a ban on expenses for title insurance companies known to throw lavish parties and the like. While this would be a small step, it would at least be one in the right direction.