When it comes to securing title insurance and closing on a home during a purchase, all parties involved need to navigate their fair share of paperwork. During this hustle and bustle, it can be confusing to keep track of the proper names of everyone related to the agreement – the seller, buyer, owners and lenders, and more.
However, understanding exactly what these terms mean is critical when considering what you are agreeing to and how it will affect you both during closing and beyond. The difference between the owners and lenders, in particular, is vital when you are selecting your title insurance policy so that you can be sure you have secured coverage as intended.
Who Is The Lender And What Is Their Policy?
A “lender” is the entity that is providing the money for the home purchase in the event that the party interested in buying the home cannot fully fund the purchase on their own with a cash offer.
Your lender is likely your mortgage company who is offering you the loan that must be repaid over time. You may have noticed that in your closing paperwork, you are paying for a lender’s title insurance policy. This is common and even expected; title insurance protects a party from unexpected issues that arise with a property’s title or history after the purchase is complete.
For example, if it is discovered after closing that the home still has liens on it that need to be paid, the new homeowner would be required to pay these off, even if they had no part in their origination.
For this reason, lenders require the party buying the house to pay for a title insurance policy for them. The lender is making a financial investment into the property with the expectation of being paid back.
However, the person buying the property may not be able or willing to pay back the mortgage if additional liens or other expenses and challenges interfere; thus, the lender is protecting their investment with title insurance. The buyer is responsible for paying for this, but it does not actually cover the buyer; this policy is for the lender only.
Are Owners Covered During Closing?
This is where many new buyers get confused. They paid for a title insurance policy during closing, so why aren’t they covered? The policy that buyers automatically pay for is the lender’s; buyers who want their own policy must secure an owner’s title insurance policy.
The owner of a home is the party who has been sold the property for the purpose of occupation. Thus, if the seller previously had title insurance on the property, it is no longer in effect once the seller is no longer the owner of that home. You will need to secure your own, new policy in order to be protected, because the seller cannot transfer their title insurance to you, the new owner.
Things To Know When Selecting Title Insurance During A Purchase
While the seller cannot directly transfer their policy to you during closing, it is entirely possible that you may agree during discussions that the seller can improve the deal on the home by funding your new title insurance policy. However, this is not a requirement.
Similarly, it is the buyer who selects the title insurance agency during closing, and both the buyer (the new owner) and the lender will use that agency for insurance. Thus, you can vet your own insurance agency if you like, or you can follow the recommendation of your lender if you feel overwhelmed.
Title insurance does not function like other types of insurance such as auto and homeowner’s that you pay monthly. Instead, title insurance is a one-time payment that permanently covers you for as long as you remain the owner of the home.
Standard coverage protects against former liens, undisclosed heirs, forgery and fraud, but if you want even more robust coverage, you can add more protection at an additional cost. This is sometimes referred to as enhanced title insurance, or you may add riders for things like zoning issues and property line disputes if you would find them helpful.
Trust The Experts To Help You Secure The Right Coverage
Whether you are just considering title insurance for the first time or you already know what type of coverage you need and are considering the best agencies, do not hesitate to ask any questions that you have. The experts at Mathis Title Company are available to help you fully and transparently understand the process so that you can make the right decision for you. Reach out to learn more or to schedule an appointment.