Like all forms of insurance, title insurance is a way of hedging your bets. You are optimistic that the property title is clean, and no hidden issues will arise, but insurance is there to help you if something should happen. Similarly, your lender requires title insurance to protect the security of their loan for your home. Because of this, if you are refinancing your home, you will not have to buy new title insurance to protect you as the owner because that isn’t changing. However, you will need to buy a new lender’s title insurance policy. Read on to find out why this is the standard practice.
What Does Title Insurance Do?
Title insurance will appear on the closing papers of any real estate purchase as another line-item expense, but it can be a huge lifesaver. As with other insurance, it only seems useful when you need it. But when is that? Title insurance acts to protect you from third parties who claim ownership of your property. There is also the lender’s title insurance, which will protect the lender’s investment in the property. Both kinds of title insurance will help protect you financially from instances in which someone steps forward to try to claim the title.
What is the Difference Between Owner’s and Lender’s Insurance?
When you buy a home, you will have the option to purchase owner’s title insurance, which will protect you from legitimate and illegitimate claims against the title.
Defects in the title can also endanger the security interest of your mortgage lender, so your financial institution will insist on the lender’s title insurance. This will protect the interest of the lender and is paid for by the homebuyer. A lender takes back security interest in the property in case you default on payments, which means it can foreclose on you and sell your property if you don’t follow the loan agreement. If you encounter a title issue, you may not be able to follow that agreement, which explains why the lender wants to be so cautious.
What Happens When Refinancing Your Home
If you bought title insurance when you purchased your home, you do not need to buy a new owner’s title insurance when you refinance. You are still the property owner, so the title remains correct, and the insurance still protects you.
However, you will need to purchase a new lender’s title insurance policy. The previous lender’s title insurance doesn’t insure the new mortgage that is created when you refinance. This means that the lender is not protected. To ensure that you and your lender are protected against any unforeseen events, you should purchase a new lender’s title insurance when refinancing your 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, and LinkedIn.