Anytime you buy or transfer real estate, the title to the property needs to be clear. You will want nothing to cloud it, such as judgments, liens, unknown owners or heirs, and so forth. Otherwise, this can delay or halt the sale altogether. 

Title insurance policy protects against these defects in the title – and there are two types, one for the new owner and one for the lender. But the lender’s title insurance policy is the only one that is required. 

Why You Need Lender’s Title Insurance

You may be wondering why you have to purchase a lender’s title policy. The reason is this – the lender has agreed to give you a mortgage on a piece of property – and they want to make sure that they recover their money should anything arise, such as a judgment or lien. 

A lender’s title insurance policy wipes out the risk caused by defects in the title that occurred prior to the new owner taking possession. It provides the lender with a level of reassurance and protection that investing in you and your property will be a safe move. And, if there is a mortgage on the property, it is required before the closing can be finalized. This policy protects the lender just in case any title defects are missed during the title search process. 

Before the lender’s title insurance policy is issued, a title search does a deep dive into the property records looking to make sure there is nothing to disrupt the transfer from the seller to the buyer. Anything that is uncovered, such as unpaid taxes, liens, and easements, can often be cleared up by the seller before the closing.

Buyers have the opportunity to review the title search report and, once approved, the lender’s title insurance policy is created. 

Every lender is going to be different, but large mortgage companies such as Fannie Mae and Freddie Mac require that this lender’s title policy be for at least the amount of the mortgage. They want to be sure they are protected for the amount they are investing. As the new owner begins paying down the principal balance, the value of the lender’s insurance coverage also reduces. 

The Cost of Lender’s Title Insurance

A lender’s title insurance policy is bought with a one-time premium at closing and it will protect the lender for the life of the loan. There are no ongoing expenses or monthly premiums associated with this type of insurance policy. 

So, how much does it cost? It varies based on the amount of the loan. On average, this amount is 0.5% to 1% of the purchase price – when purchased with an owner’s policy, too. If you would like to calculate the exact cost of your lender’s title insurance policy, it is best to speak to an experienced title company. 

Allied Title & Escrow provides residential and commercial services and is licensed from PA down to FL. Their team of industry experts and attorneys handle all aspects of the settlement process from start to finish to provide a closing experience unlike any other.