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Owner's Title Insurance vs Lender's Title Insurance; What It the Difference?

Friday, May 15, 2020

Falling in love with a home is but a baby step toward homeownership. In between the seller accepting your offer and you unlocking the front door with your own key, you'll make what feels like a million decisions.

Choosing the right home loan, hiring a qualified home inspector, and shopping for insurance all move you closer to homeownership.

In terms of insurance, you'll definitely need a homeowner's policy, but you'll also face decisions about two types of title insurance. Read on for more about owner's title insurance vs. lender's title insurance.

Title Insurance Required by Your Lender

As the name implies, a lender's title insurance policy protects the lender in a real estate transaction.

In some states, lenders may only require title insurance for federally insured mortgages. However, in the state of Pennsylvania, most lenders require a lender's policy regardless of your loan type.

Lender title insurance protects your lender from problems associated with the chain of title. The title company does a complete title search before closing, but sometimes an issue comes up after closing.

Usually, your lender will require title insurance to cover the amount of your loan. They want assurance that they won't lose their investment. A lender's title policy remains in effect until the buyer either sells the home or pays off the loan.

Title Insurance for the Buyer

While the buyer doesn't have a choice about the lender's title insurance, they do have control over the buyer's title insurance policy.

Unlike the lender's policy, which only protects the lender's interests, the buyer's title insurance offers direct protection for the homeowner. The lender's policy guards against issues with the chain of title, but the buyer's policy ensures the property is free of encumbrances.

Called hidden hazards, the policy covers:

  • Lost Heirs
  • Forged Wills and Deeds
  • Tax and Mechanic's Liens

These are only a few claims against a piece of property that could impact the buyer's ability to retain ownership.

One thing to remember about owner's title insurance—it's not in any way like homeowner's insurance.

Does the Buyer Pay for Title Insurance?

The cost of a lender's title insurance policy rolls into the buyer's closing costs. You'll make a one-time payment at closing.

Every real estate closing includes a title search. It's done before the closing, and the buyer pays for it. The buyer also pays for the owner's title insurance policy. A savvy real estate agent may negotiate for the seller to help with the cost of the policy.

Wondering how much you'll pay? Your title company calculates the cost of your premium based on the purchase price of your home. They may also include extra endorsements and administrative fees.

More Questions about Owner's Title Insurance vs. Lender's Title Insurance?

While they don't cover identical issues, both title insurance products help lenders and buyers avoid loss due to errors that come up after a real estate closing.

We hope reading this post helped you decipher owner's title insurance vs. lender's title insurance. Whether you still have questions or you're ready to purchase your title insurance policy, we hope you invite us to work as your preferred title company. Contact our team today for more information.

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