Avoid Financial Armageddon with Mortgage, Refinancing

car and  house made of dollars
Financial Armageddon is an event so devastating that it completely wipes out your savings, puts you deep in debt and ruins your credit. It's something you could be at risk for if you plan to buy or refinance a home without getting the proper protection.

A cheap and easy way to protect yourself involves buying owner's title insurance when you purchase your home.

Most people are familiar with lender's title insurance, which is mandatory for most mortgage loans. It protects the lender against issues with the property title (or deed). For example, if you purchase a home, and it later turns out that the title was clouded or improperly conveyed, causing the home to revert back to a former owner, lender's title insurance pays off the balance of the loan, insuring that the bank doesn't lose any money.

Your Money at Risk

But what if you purchased a home and then spent $25,000 of your own money on upgrades before the title issue was found out? You would lose that money.

Or even worse, imagine that you refinance your home -- which means you are paying off Lender A and taking out a loan with Lender B -- and when the money is wired from one bank to another, it is stolen by cyber-criminals or an unethical employee. In many states, you would be liable for both mortgages, leading to financial Armageddon.

With owner's title insurance, you would be compensated for all of your out-of-pocket expenses related to improving your property and would be protected in the scenario where funds were stolen in the course of a refinance.

Owner's title insurance varies by location and provider but generally costs about 0.05 percent of the price of your home, or roughly $200 for a $400,000 house. It is a one-time fee that can be incorporated into closing costs and also covers forgery, incorrect or unauthorized document signatures, fraud, judgments and encumbrances, defective records, restrictive covenants, undisclosed heirs and deed omissions.

Though the likelihood that you will experience any of the circumstances that owner's title insurance covers is very slim, it's nice to know that for literally pennies on the dollar you can protect yourself from a potential financial catastrophe.

No man is an island, or even a peninsula, so I encourage your feedback in the comments below. And don't forget to pick up my book, "Trading: The Best of the Best -- Top Trading Tips for Our Time."

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