Wondering about the difference between owner’s title insurance and lender’s title insurance? We get it – the terminology surrounding real estate can get very confusing, especially to those that are entering the homeownership process for the first time!
It’s vital that home buyers understand the difference between these two terms. Title insurance is a crucial thing to have for your property; title insurance, on its most basic level, protects your (usually significant) financial investment in the piece of property you’re purchasing by ensuring you actually have the right to buy it. Sounds like a good idea, right?
So, if you hear those common terms of owner’s title insurance and lender’s title insurance, how can you differentiate between the two – and what do you need to know to make sure you can actually purchase your property? Let’s break down these two critical real estate terms in this owner’s title insurance vs. lender’s title insurance blog.
Before we tackle the idea of owner’s title insurance, let’s first examine the other element that’s out there: lender’s title insurance.
In most cases for homeownership, this is the type of insurance you will have to purchase. Put simply, lender’s title insurance is the element of protection your mortgage lender needs to ensure that they won’t get in legal or financial trouble by anyone putting a claim on your property after you purchase it.
“Wait,” you might ask, “if I purchased it … it’s got to be mine, right? Why would there be a problem?!?”
There are actually a whole host of problems that could pop up with the chain of ownership that comes before your supposed purchase of the property. There are a host of issues that a property title search might miss, including things like:
- Unexpected heirs. Somewhere down the line, a relative or family member may have supposedly “inherited” the property from another person – when, in fact, it should have gone to a different heir. In that case, that person might have a legitimate claim on the property.
- Errors in the public record. Government institutions, lenders, banks, and attorneys do make errors frequently. Any errors in the paperwork up or down the line could deal a severe blow to the transaction.
- Unpaid liens or deeds on the property. Here’s another bottom-line fact when it comes to the property you’re attempting to purchase: if there are debts owed on the house or the property, those monies could easily become the responsibility of the next owner to that property. No one wants to pay for services or features they didn’t actually use (or need), so those unpaid debts could also have a tremendously adverse effect on the outcome of the homeownership process.
- Forgeries or impersonations, crazily enough, are also a common thing to disrupt the homeownership process. There are many people out there that don’t have the best wishes of others in their hearts. In a process as complicated as real estate ownership – with plenty of signatures out there – there are also plenty of opportunities for those unscrupulous individuals to take advantage of the process and pretend to be something they’re not. Those types of forgeries or impersonations can deal a fatal blow to the real estate transaction.
Those are only a small sample size of the many, many different things that can go wrong with the title process. Obviously, the mortgage lender – the same institution writing out a check with many, many zeroes on it for the purchase – wants to make sure they’re insured against any of those legal problems that come up later on. So, that’s where lender’s title insurance comes in.
Oh, and as for who ends up paying for the lender’s title insurance? Well, that’s usually on the home buyer’s shoulders. Most lenders will include the fees for that title insurance in the overall price. It is possible, however, to negotiate that fee within the homeownership process.
So, what is the difference between owner’s title insurance and lender’s title insurance?
As opposed to protecting the lender from all of the little things that could pop up in the homeownership process that might put them in legal trouble, owner’s title insurance is for the buyer.
It will protect you against all of the same things that the lender’s title insurance protects against – just on another level. It will give you financial assurance and peace of mind for that time after the purchase gets agreed upon, and everything is signed and dotted.
So – the main difference? The owner’s title insurance protects the owner, the lender’s title insurance protects the lender. Now the question becomes: do you need both?
If you’re going to get a mortgage on your property, the vast majority of lenders will make you purchase lender’s title insurance before you can sign your name on anything. Again, you’ll more than likely have to purchase this type of title insurance (though you can negotiate the price down or make it part of the overall purchase). So there’s no getting around lender’s title insurance.
Owner’s title insurance is another story. This specific type of insurance is optional. You don’t need it – but it’s probably a good idea. There’s a pretty good chance that your home will be the biggest purchase you’ll ever make in your life. With the amount of money you’re going to lay out for your new home, why not make every effort in order to protect your significant investment?
Our best advice? Explore your options when it comes to owner’s title insurance, find a policy you’re comfortable with (and that fits in your price range), add it to your insurance arsenal, and get the peace of mind you deserve. Another option? Explore “bundling” it with the lender’s title insurance to save some more money!
The question of owner’s title insurance vs. lender’s title insurance is one that can confound anyone within the homeownership process (especially first-time buyers). That’s why we’re here to help! Looking for more guidance on owner’s title insurance or anything else related to title insurance? Go ahead and explore LemonBrew Abstract, providing “Transparently Fresh Title and Escrow Services.” We’ve built LemonBrew Abstract from the ground up to make all parts of the real estate closing process seamless and more transparent.
For more information on the owner’s title insurance process (and everything else real estate), take a trip over to the LemonBrew blog. There, you’ll find in-depth feature pieces perfect for home buyers, home sellers, real estate agents, or anyone else fascinated by the real estate process. Read articles like “7 Myths About the Mortgage Loan Process,” “Title Insurance vs House Insurance: Do you need both?,” “9 Negotiation Tactics When Buying a Home,” and much more.
Finally – be sure to explore everything LemonBrew has to offer on the LemonBrew website. From matching with a real estate agent to lending to title insurance, we’ve got it covered. See what we’re all about right here.