The two major kinds of property title insurance are lender's and owner's policies. As you might expect, a lender's policy protects a lender from title and land ownership issues, while an owner's policy protects the owner. Lenders are sophisticated real estate investors, and they understand the issues and problems that can affect the title to any given property. That's why most of them require buyers to obtain a lender’s title policy to protect their mortgage lien if there’s an issue with the title.
While the title insurance policy is issued at closing for a one-time premium, the preparation that leads to the title insurance policy being issued begins in the very early stages of the closing process.
This policy, also known as a loan policy or a mortgage policy, protects the lender against loss due to unknown title defects. It does not protect the purchaser, which is why a home buyer should also get an owner's policy. Here, Riverside Abstract, a leading title insurance company, explores some of the most frequently asked questions regarding lender’s title insurance.
While owner's insurance premiums are usually based upon the sale price of the property, lender's title insurance premiums are based upon the amount of the loan, which is often 80-90% of the sale price of the property itself. Therefore, Riverside Abstract title processors explain, buyers usually end up paying less for lender's policies than they do for owner's policies.
Unlike the owner's title insurance, which lasts as long as the current property owner owns their property, lender's title insurance remains in effect until you repay the loan in full. That means the value of the policy decreases as the loan principal is paid down and expires when the mortgage is paid in full. So, when a property owner refinances their property since the old loan is technically paid off by the new one, they'll have to get a new lender's policy.
When you first purchase a home, you are faced with many fees and costs associated not only with the home itself but also with the loan. Although highly recommended by Riverside Abstract experts, you are actually not obliged to purchase owner's title insurance for a home. However, the vast majority of banks and other mortgage lenders, require the borrower to get a lender's policy insurance equal to the loan amount.