When you buy a home, you’ll hear terms such as ‘lender’s policy’ and ‘owner’s policy’ when the lender talks to you about title insurance. Understanding the difference between the terms, how much they cost, and who pays for them can help you decide what type of coverage you need.
What is a Lender’s Policy?
If you take out a mortgage, the lender’s policy is a requirement. This coverage protects the lender should there be an issue with the title down the road. Even though this coverage is for the lender, the buyer pays for it. The lender’s policy protects the lender should someone try to claim ownership of the property despite the declaration of a clear title based on the title search and examination.
What is an Owner’s Policy?
The owner’s policy offers similar coverage as the lender’s policy, except it protects you, the owner. This insurance coverage isn’t required, but is often recommended. This policy covers you in the event that the title was given to you based on false information. If there is a lien on the property or someone tries to stake a claim, this policy will cover you financially.
Before You Can Buy a Policy
Before you can buy either an owner’s or a lender’s title insurance policy, a title company must conduct a title search or examination. During this process, the examiner goes over the chain of ownership since the home was built. The examiner will make sure there isn’t anyone down the line that can still stake a claim in the property. They also make sure all taxes are paid current, that there was no fraudulent activity in transferring the property, and that there are no errors or omission to the best of their knowledge.
If there are any issues, they must be resolved before the title company will issue any type of insurance.
Lowering the Cost of the Policies
If you decide you want the owner’s policy to protect yourself down the road, you may want to look for the best deal. We recommend that you start with the title company that will provide the lender’s policy. Oftentimes if you purchase both policies from the same company, you can secure a bundled discount as opposed the policy from two different companies.
Of course, just like any other insurance, you should shop around for the best rates. Don’t settle for the lowest rate, though. Make sure you do your homework. Check out the insurance company’s reviews and ratings. Are they brand new or are they an established company? Remember, you might not have a claim for another 15 years. Will this company still be around then to provide you with the coverage you paid for?
Which Title Company Should You Use?
Again, we recommend shopping around. Don’t just settle for the company the seller used. Remember, the title company is supposed to conduct a search to make sure there aren’t any errors or issues with the chain of ownership. A fresh pair of eyes on these items can help you get the most out of the title search. Using the same title company that the seller used originally will likely provide you with the same results. How do you know they are accurate?
Check with your lender for recommendations. Remember, your lender has a vested interest in the property as well. They will likely use a reputable title company that will be able to spot any errors should there be any in the chain of ownership.
While you need to buy a lender’s policy, an owner’s policy is a good investment because it protects you. The hope is that you never have to use the coverage, but if you do, there’s peace of mind knowing that it is there. It could save you thousands of dollars down the road should anything happen with your homeownership.Click to See the Latest Mortgage Rates»