Types of Title Insurance
What type of title insurance do lenders usually request? Lenders usually request lender’s title insurance to protect their financial interests.
There are two main types of title insurance:
- Lender’s title insurance
- Owner’s title insurance
Lender’s insurance only covers the lender up to the amount of the loan, while owner’s insurance protects the property buyer’s financial interests based on the purchase price.
Costs and Benefits
Lender’s title insurance costs a few hundred dollars and is nearly always required as part of a mortgage application. Although optional, owner’s title insurance is highly recommended.
How Title Insurance Works
Title insurance protects against financial loss from defects in a property’s title discovered after purchase. Title searches aim to uncover these defects beforehand, but sometimes problems get missed. It originated in the 1800s when property abstractors researched titles for buyers.
Coverage Specifics and Real Estate Transactions
Lender’s title insurance protects lenders against problems with a property’s title.
- Protects the priority, validity, and enforceability of the mortgage.
- Costs are calculated by multiplying the purchase price by the rate per thousand the insurance company uses.
In most real estate deals, the lender requires a lender’s policy of title insurance, which the buyer usually pays for. The lender’s policy is effective as long as the mortgage is in place.
Owner’s title insurance protects the owner from claims against the title that predate the purchase. In the standard purchase contract, the seller pays for the owner’s policy, and the buyer pays for the lender’s policy. Lender’s coverage is mandatory on most mortgage loans, while owner’s coverage is optional.
Title insurance is a unique form of insurance that protects your ownership from the time of purchase until you sell your home. It covers situations that may affect the right of use and occupation which may cause financial loss. The risks covered must be present or latent before the policy is signed.