Lender’s Title Insurance Policies, Everything You Need to Know.

Lender’s title insurance is a type of insurance that protects the lender from any financial losses that may incur as a result of owning a property, while you’re paying them back for the loan.

Lender’s title insurance works like a backup plan to protect the lender in case any unforeseen issues surface that were not discovered during a title search. These issues can range from an undisclosed heir to a mistake in ownership history.  These title issues may result in casting doubt on the ownership of the property and potential cause you to lose ownership of it.

Here are some common questions and answers about lender’s title insurance.

• Am I legally required to buy a policy?
• Is this the same as the owner’s policy?
• If the lender’s policy is purchased, do I still need an owner’s policy?
• How much does a lender’s policy cost?
• Who pays for the lender’s title insurance policy?
• Who picks the lender’s title insurance policy?

Am I legally required to buy a policy?

Yes, you are legally required to buy a policy, and most lenders require that the borrower (the home buyer) purchase the lender’s title insurance policy.  The lenders requires this to protect themselves in case someone lays claim to your property. 

For instance, if the initial title search came back clean, but years later, a title issue arises that says the chain of ownership is different than previously stated, the lender’s investment is insured if you have not paid them back in full yet.

Is this the same as the owner’s policy?

Lender’s title insurance is not the same as an owner’s policy. Lender’s title insurance protects the lender from any financial losses from the property. A separate policy – owner’s title insurance – is required to protect the owner from any claims against the property that may have occurred before the sale.  The lender’s policy protects the lender and an owner’s title insurance policy protects you as the property owner.

If the lender’s policy is purchased, do I still need an owner’s policy?

Whereas it is not legally required for you to buy an owner’s title insurance policy, it certainly is a good idea to buy one. Once you’ve paid off your loan, a lender’s policy will not protect you as the official property owner.  

If you as the owner want to have this same protection, you will need to purchase an owner’s title insurance policy. This will cover most costs that occur if a title claim arises.  These costs may include legal fees for court battles, future title searches, and possibly liens that someone places against your deed.  Each policy is different so read your policy carefully.

How much does a lender’s policy cost?

The cost for these policies vary from state to state, but you can expect to pay anywhere from $500 – $5,000 for title insurance, though the average costs are around $1,000. Several factors exist when determining these costs, such as the title search, and any costs that occur from title defects.  Another factor is the loan amount; the more money being invested can result in a higher premium. In certain circumstances, you may be able to negotiate the price for both policies to be covered at a discounted rate.  The main factor in determining the price of a title insurance policy is the cost of the property itself.  

Who pays for the lender’s title insurance policy?

The buyer is typically required to pay for all title insurance expenses, and the costs are usually tendered at escrow.

Who picks the lender’s title insurance policy?

The choice is ultimately up to you as the buyer, so there is leeway in being able to shop around for the policy that best suits your budget. In many circumstances, your real estate agent will have a recommendation.  They’ll normally recommend you stick with the title company that will be in charge of your title search, escrow and closing to make the process easier.