The Differences Between Owner’s Title Insurance and Lender’s Title Insurance

lender's title insurance policy

Lender’s title insurance and owner’s title insurance offer protection to the mortgage lender and the homeowner.

Owner’s title insurance and lender’s title insurance have similarities, but also a few important distinctions. These types of insurance, also known as an “owner’s policy” or a “loan policy,” are either required or highly recommended for purchase during the home closing process. Read on to learn the essential features of the owner’s title insurance as well as the lender’s title insurance. 

What Lender’s Title Insurance Protects

Most lenders will require lender’s insurance to be in place when they issue a real estate loan to a potential homebuyer. This lender’s title insurance will protect the lender’s interests in the property if an issue arises with the property title. A loan policy is paid off through the mortgage and will decrease as the loan is paid down. However, a loan policy alone will not protect the buyer of the property.

What Owner’s Title Insurance Protects

Owner’s title insurance is a one-time fee that is paid during the closing process. Once paid for, the policy will protect the owner as long as they have an interest in the property. An owner’s policy protects the purchase from any title issues. These hidden problems can include: 

  • An omission or error with the property deed
  • Forgery with the title
  • Undisclosed heirs with rights to the property

How Lender’s Title Insurance Works

Lender’s title insurance works to protect the lender against any problems with the title. If someone sues with a claim against the home, the lender’s policy will cover any claims that would affect the loan provided by the lender. The loan policy will cover the amount of the mortgage or loan given to the homeowner to purchase the property, but it does not necessarily cover the entire value of the property itself. 

If a claim arises, a lender would be concerned about the fact that their loan would fail to perform as promised. This could even threaten the ability of the lender to foreclose on a property, which is why the lender requires title insurance. 

How Owner’s Title Insurance Works

When you purchase a new home, you receive a document called a deed. This document transfers the legal ownership of the property to you. With title insurance, the owner is protected against a lawsuit from someone claiming ownership. Without the policy, you will have to defend yourself against any ownership claims. 

Most mortgage and title companies will give you options if you’re interested in an owner’s policy. Alternatively, you could work with a third-party insurance provider. However, using the same provider for both a loan policy and an owner’s policy can save you money. 

While lender’s title insurance is often required, owner’s title insurance is usually optional. For most real estate transactions, however, Colony Title Associates recommends paying for both to ensure the protection of your interests in your new home. 

A Title Company You Can Trust: Colony Title

At Colony Title, we will help you through the process of getting your property’s title and help you avoid the pitfalls of hidden costs while you buy your home. We are also well trained in identifying any and all errors in public records and helping you resolve them. We specialize in real estate title insurance in both Maryland and Washington, D.C., and we will perform an expert title search, check through all past documentation, and examine records for any fraud or forgery. For more information on how we can get you into the home of your dreams, contact us online or give us a call at (410) 884-1160. To get more updates on housing markets and how to get into your home, follow us on Facebook, Twitter, LinkedIn, and Google+.

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