There are several different types of insurance that are important to buy after purchasing a new home, one of which is title insurance. This type of insurance shields both property buyers and lenders against financial losses tied to “defects” or issues with a home’s title, which is a document that functions as proof of legal ownership. There are two types of title insurance policies: an owner’s policy and a lender’s policy. Here is a close look at the latter type of policy.
What Does Lender’s Title Insurance Cover?
Lender’s title insurance shields lenders from issues related to a property’s title. Common examples of title defects include:
- Unpaid property taxes
- Outstanding lawsuits and liens to contractors and other similar professionals
- Judgements, easements, and encumbrances
- Claims involving fraud or forgery
- Public record errors
- Undisclosed heirs
A title search is generally conducted to ensure that none of these problems exist, in other words, that a home’s title is “clean.” A lender’s title insurance policy merely covers claims that impact a lending institution’s loan.
What Isn’t Covered By Lender’s Title Insurance?
It’s also important to know what a lender’s title insurance policy does not cover. This type of policy doesn’t protect any equity a homeowner has in their home or cover claims that are unrelated to the loan. To receive protection for equity after a title issue arises, a homebuyer should acquire an owner’s title insurance policy.
Lender’s title insurance also doesn’t cover claims associated with fire, flood, or weather-related damages. For protection against these types of incidents, a homeowner’s insurance policy (and personal flood insurance policy) would be needed.
How Much Does Title Insurance Cost?
According to ValuePenguin, the average lender’s title insurance policy costs $544. However, this figure typically varies depending on the state and the amount (principal) of a mortgage loan. When an owner’s and lender’s policy are purchased together, the total cost of title insurance equals approximately 0.5 to 1% of a property’s purchase price, per ALTA (American Land Title Association) vice president of communications Jeremy Yohe. Additionally, the cost of a title insurance policy often includes fees such as a title search fee, a document preparation fee, and an endorsement fee.
Who Pays For Lender’s Title Insurance?
Normally, the homebuyer is responsible for paying for the policy. However, this may vary depending on the state. Sometimes, the homeowner’s escrow funds are used to pay for both the owner and lender policies. If the mortgage loan is new, the homebuyer will typically pay the policy premium. The party responsible for closing costs is determined by the home purchase contract and any local or state government regulations that apply.
An alternative to title insurance is a warranty of title, which is a guarantee from the seller that he (or she) is legally allowed to transfer ownership of a property exclusively to the buyer. In the event that another person claims to own the home, the buyer may use the warranty as a legal tool against the seller. A warranty of title option is often not available in cases involving estate sales because in these situations, the seller of the property is not an owner but rather merely a representative.
The most important thing to remember is that a lender’s title insurance policy will only provide coverage up to the amount of a loan. Therefore, it’s essential to carefully assess your coverage needs and risks before deciding on a policy. Be sure to ask each insurer you contact for multiple quotes and ask for the exact level of coverage that each type of policy offers.
Speak To The Title Insurance Pros About Lender’s Title Insurance
Contact the professionals at Mathis Title Company to learn more about lender’s title insurance and its benefits. We are dedicated to providing title insurance, legal advice, and other real estate services to lenders, buyers, and sellers throughout Northern Virginia.
Ann Andreatos is a title agent who has an excellent ability to track down missing liens and detect errors, and Robin Mathis is an attorney who has performed thousands of closings and understands both the buyer and seller sides of real estate transactions extremely well.
Our lender’s policies are designed to cover mortgage lenders in the event that somebody files a claim that might impact the lender’s investment in a property’s sale. These policies will protect you against title defects such as unrecorded easements, liens, or encumbrances. Call Mathis Title Company today or visit us online for more information on our title insurance policies.