Buying a home involves a lot of paperwork, and one of those documents might be a bit confusing: Lender’s Title Insurance. This type of insurance isn’t for you, the homeowner, but for the bank lending you the money.
It’s important to understand that a lender’s title insurance only safeguards the lender. If you want similar protection, you should consider obtaining owner’s title insurance as a homebuyer.
What is Lender’s Title Insurance?
A lender’s title policy generally protects mortgage lenders financing your transaction from any property-related issues like someone claiming a right to your house.
It is like a safety net for the lender when you buy a house. It protects them from problems with the house’s ownership history, like unpaid bills or hidden claims from other people.
What does a Lender’s Title Insurance Cover?
Lender’s title insurance protects against common problems that could prevent you from getting a clear title to the property. Here’s what it covers:
- Unpaid taxes: If the seller owes taxes, the sale can’t go through.
- Deed errors: Mistakes in the deed can make ownership unclear.
- Forgery: Fake documents can prevent a legal sale.
- Encroachments: Issues with property boundaries can cause problems.
- Liens and lawsuits: Legal claims against the property can prevent ownership transfer.
- Undisclosed heirs: Unknown heirs who have a claim to the property can surface later.
In such cases mentioned above, a third-party person or entity is motivated to claim direct rights to the newly transacted property.
Lender’s Title Insurance vs. Owner’s Title Insurance
| Lender’s | Owner’s |
| The lender’s policy protects the lender’s interests in the real estate transaction. | Owner’s title insurance looks after the buyer and protects their investment from title defects. |
| The policy is equal to the loan issued. | The policy has a one-time fee paid at closing. There are two coverage options, standard and extended. |
| As the loan is paid back, the liability is reduced. | The policy lasts for as long as the buyer or his heirs own the property. |
| It is mandatory. | It is optional but recommended. |
Who Pays Lender’s Title Insurance?
The homebuyer is the one generally responsible for paying the lender’s title insurance policy costs. The overall title insurance as well as the other closing costs fees are negotiable but vary depending on different states.
However, in some states, sellers may also be involved in making payments. For example, the buyer pays for title insurance in Virginia, while in Nebraska and South Dakota, this payment is divided equally between the buyer and seller.
How Much is Lender’s Title Insurance?
The cost of a policy is usually equal to the amount the loan is issued for. The accountability of the title insurer decreases as the loan is paid off.
It constitutes about 0.5% to 1.0% of the total property sales price. The average cost of the title insurance which includes the owner’s, the lender’s, and title search fees constitutes around 1% to 1.2% of the house sales price. These are the factors that affect the costs of title insurance premiums.
In states like Florida and Texas, the title insurance premium costs are fixed by the government itself, whereas in New Mexico and California, the premiums are flexible and can be negotiated and shopped around.
Do You Need a Lender’s Title Insurance?
Yes. You will mandatorily need a lender’s title insurance policy for buying a new property through a mortgage loan. The policy ensures the lender, as well as the buyer about the house in which they are dealing, is clear from any disputes or past legal frailties.
As a thorough search is conducted also known as a title search, the title company does all the record digging on your property and certifies the title as safe for the transaction. This search provides an ultimate seal of approval thus safeguarding you from any title defects that prove fatal in the future.
Do You Need Lender’s Title Insurance for a Refinance?
Yes, you will mandatorily need a lender’s title insurance policy to apply for a refinance on the mortgage loan. It helps the new mortgage lender skip the hassle of title search and clearance, saving time and some precious bucks off your wallet too.
Generally, refinance mortgage loans are done to get lower mortgage interest rates or whilst requesting a new extended term to repay the amount.
Things to Consider While Buying
For a new homebuyer, whilst opting for an owner’s title policy, the things to take into consideration are:
- Shop around: Several title companies with alternate cash offers are always present nearby. So it becomes better for the new homebuyer to choose from.
- Negotiate and Bargain: Homeowners can always negotiate the terms and know in detail about them. You can also bargain the prices if the government has not fixed them as in the state of Florida.
- Combine, if possible: Buying owner’s and lender’s title insurance from the same title company can substantially reduce the total premium cost.
A policy remains effective the whole tenure of the mortgage loan. However, the lender can also choose to extend the insurance by choosing the right options.
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Frequently Asked Questions
What is title fees?
Title fees are a part of closing costs. They include the charges for carrying out the title search of the property, attorney and notary services, settlement fees, etc. If you want to know how much you will need to pay as closing costs, use Houzeo's closing cost calculator.
How much does the title insurance cost?
When bought together, the lender's title and owner's title policies usually cost about 0.5% to 1.0% of the home's purchase price. The premium rate is based on the location of the property and the mortgage amount. In some states, title insurance premiums are regulated by the state, while in others, the policies are competitively priced. They can even go as high as $1,000.
How can purchasing both lender’s and owner’s title insurance affect costs?
You can possibly save money on title insurance by purchasing both the lender’s and the owner’s policy together from the same company. Called a “simultaneous issue rate,” it can come with a lower premium amount for the lender’s insurance policy.
