When purchasing a new house, many home buyers take out a mortgage to finance their investment. According to data from credit bureau Experian, an estimated 44% of American consumers have a mortgage, as of 2020.
Taking out a mortgage can lessen the financial burden of buying a house. However, home loans can come with a variety of requirements, including lender’s title insurance. Keep reading to learn what lender’s title insurance covers, how much it costs, and who needs it.
What Is Lender's Title Insurance?
Lender’s title insurance is a type of insurance that protects your mortgage company’s financial investment in your home if there is a title dispute. It only covers the lender, and is usually required any time you take out a mortgage.
When you buy a new home, the title is transferred into your name. The title is a document that verifies you are the legal owner of the home, and gives you the right to sell the home.
However, titles can be faulty. After you take ownership, you might find out that the previous homeowner failed to pay their property taxes, an heir might come forward claiming rightful ownership, or there could be a clerical error on the title.
Depending on the type of title claim you’re dealing with, the money you borrowed from your lender could be in jeopardy. Lender’s title insurance protects your lender up to the amount you borrowed.
Owner's Title Insurance vs. Lender's Title Insurance
As mentioned, lender’s title insurance only protects your lender. It does not provide any coverage for you as the homeowner.
However, title disputes can also have a negative impact on homeowners. To protect yourself against title claims, you can choose to purchase owner’s title insurance.
Owner’s title insurance will cover you if issues arise with your home’s title. This type of insurance can pay for your legal fees and a settlement with the other party, whether it’s an heir or the previous homeowner’s mortgage company.
Another benefit of owner’s title insurance is that it protects your equity in the home. It also allows you to continue living in the house while the title claim plays out.
Unlike lender’s title insurance, owner’s title insurance is not typically required. Depending on your state, you might not even have to pay for owner’s title insurance out-of-pocket. Sometimes, the seller pays the full cost, and in other places, the cost is divided between you and the seller.
Who Pays For Lender's Title Insurance?
You as the homebuyer are required to pay for the full cost of lender’s title insurance. Usually, the cost of insurance is a one-time payment that’s required when you take out the loan, along with all the other closing costs.
Where To Buy Lender's Title Insurance
Regular insurance companies, like the ones that sell auto and home insurance, usually don’t sell title insurance. You’ll need to purchase lender’s title insurance from a provider that offers this type of insurance.
Most mortgage companies work with a preferred title insurance company. However, you are allowed to shop around and choose your own provider. Selecting your own insurance company might also help you keep the cost down, so it’s worth doing your own research.
How Much Does Title Insurance Cost?
According to MortgageLoan.com, the cost of lender’s title insurance is typically between $1,000 and $2,500. The more money you borrow, the more your insurance will cost.
However, the cost of lender’s title insurance can vary based on lots of different factors, besides the size of your mortgage.
For example, every state has different regulations for lender’s title insurance. In some states, like Texas and Florida, the cost of title insurance is a fixed rate set by the government. In other places, like California, the rates are unregulated.
In addition, the insurance company you choose can impact the cost. That’s why you should shop around and pick your own title insurance company if you’re allowed to.
While discounts are not common when you get lender’s title insurance, there are ways to potentially lower the cost. For instance, some insurance companies will offer a lower rate if you purchase lender’s title and owner’s title insurance together.
Is Lender's Title Insurance Required?
Anytime you take out a mortgage, you are likely required to purchase lender’s title insurance. Not all mortgage companies require it, but most do. You might also be required to get lender’s title insurance if you refinance your home with a new mortgage.
Unfortunately, there is no way to get around lender’s title insurance if your mortgage company requires it. If you’re concerned about the cost, you might be able to negotiate with your lender if they are open to it.