What it insures
The National Association of Insurance Commissioners (NAIC) describes title insurance as a policy that covers past title problems that come up after you buy or refinance a property. Its examples are lost, forged or incorrectly filed deeds, property access issues and liens; elsewhere it lists errors in public records or past deeds, claims from heirs and forged documents. The Consumer Financial Protection Bureau (CFPB) adds a previous owner's failure to pay taxes and unpaid contractors. If such a claim appears, say a letter about an unpaid mortgage from a former owner, the title insurer covers the legal costs to investigate and defend the title and to settle or resolve the issue.
Homeowners insurance is the opposite: it covers future damage and liability, is renewed every year and does nothing for your ownership. The NAIC says title insurance is paid once, at closing.
Lender's policy vs owner's policy
| Lender's policy | Owner's policy | |
|---|---|---|
| Protects | The lender, up to the loan amount | You, for your investment in the home |
| Required? | Usually, by the lender | Usually optional |
| Coverage amount | The mortgage, falling as you pay it down | Often the price you paid |
| Ends | When the mortgage is paid off | When you and your heirs no longer own it |
| Who pays | Often the buyer | Often the seller; local custom, negotiable |
| On the Loan Estimate | Section B or C, "Title – Lender's Title Policy" | Section H, "Title – Owner's Title Policy (optional)" |
The gap between the two columns is the reason the owner's policy exists. The CFPB says the lender's policy only protects the lender and does not protect your investment in the home, your equity, and that if someone sues with a claim against your home, you are the first person responsible. With a lender's policy alone, a valid old claim could leave the lender whole and you without the home or the money you put into it.
Some title companies also sell an enhanced owner's policy. The NAIC says these cost about 20 percent more than a standard owner's policy, cover extra risks and may continue to cover you after you no longer own the property.
What it does not cover
- Problems that start after you buy. The NAIC's examples: a neighbor who builds a fence over your line, or a contractor who files a lien for work done after closing.
- Exceptions listed in the policy. Certain existing issues, such as an ongoing boundary dispute or an easement that lets someone run a driveway or utility line across the land are typically carved out. The title commitment you receive before closing lists them.
- Mistakes and theft during the closing itself. Money wired to a fraudster or paid to the wrong party is not a title defect. Title insurers sell a separate closing protection letter for that risk, sometimes required by the lender.
Where it shows up on your forms
The CFPB's model Loan Estimate puts the title items on page 2. A lender's policy you are required to buy appears under loan costs, in section B if the lender does not let you shop for it or section C, services you can shop for, if it does, next to the title search and settlement agent fee. The owner's policy, when the lender does not require it, sits in section H, Other, labeled "Title – Owner's Title Policy (optional)". The guide closing costs explained walks through all the sections and which ones may change before closing.
Buying both from one company: simultaneous issue
Title companies often offer a lower rate, called a single or simultaneous rate, when you buy both policies from the same company. The CFPB's factsheet works an example with hypothetical rates: a full lender's premium of $1,175, a full owner's premium of $2,568, and a simultaneous lender's premium of $200 when bought with the owner's policy.
| Purchase | Total premium |
|---|---|
| Lender's policy only | $1,175 |
| Both, from different companies | $3,743 |
| Both, from one company | $2,768 |
In that example the simultaneous rate saves $975. The forms show it in an odd way, which confuses many buyers. Federal disclosure rules always list the full lender's premium, $1,175, and then show the owner's policy as the full owner's premium plus the simultaneous lender's premium minus the full lender's premium: $2,568 + $200 − $1,175 = $1,593. The title company's own quote will say $2,568 for the owner's policy. Both add up to the same $2,768, which is why the CFPB tells you to compare totals rather than individual lines.
How to shop for it
- Look at section C of your Loan Estimate. The lender must give you a list of title and settlement companies in your area; you can usually use one not on the list if the lender agrees.
- Ask two or three companies for a full quote on the expected price: lender's and owner's premiums, search fee, settlement fee, endorsements, closing protection letter. The CFPB estimates shopping could save as much as $500 on title services alone.
- Ask about the simultaneous rate and any other discounts, and compare the bottom-line total.
- Mind the tolerance rules. If you pick a provider from the lender's written list, the CFPB says those costs as a group cannot rise more than 10 percent between the Loan Estimate and closing; with a provider not on the list they can change by any amount.
- Read any affiliated business disclosure. The NAIC notes that a real estate agent or lender may have a financial interest in the title company they recommend; federal law requires a written disclosure, and you are never required to use that company.
- Check who pays. The NAIC says local rules and traditions decide, buyers and sellers can negotiate it, and often the seller pays for the owner's policy and the buyer for the lender's.
Title costs are a one-time line in the cash to close, not part of the monthly payment. The home affordability calculator includes closing costs in the cash a purchase needs, and the mortgage calculator shows the monthly side.
Frequently asked questions
What does title insurance cover?
Past problems with the ownership record that come to light after you buy or refinance. The NAIC lists lost, forged or incorrectly filed deeds, property access issues and liens as examples, along with errors in public records and claims from heirs; the CFPB mentions a previous owner's unpaid taxes and unpaid contractors. The insurer pays to defend the title and settle or resolve a covered claim.
Is title insurance a one-time cost?
Yes. The NAIC says you pay the premium once, at closing, unlike homeowners insurance, which renews every year. An owner's policy then lasts as long as you or your heirs own the property; a lender's policy ends when the mortgage is paid off.
Do I need owner's title insurance if the lender already requires a policy?
The lender's policy only protects the lender. The CFPB says it does not protect your equity, and that if someone sues with a claim against your home, you are the first person responsible. An owner's policy is usually optional, and the CFPB and NAIC both suggest considering one so a title problem does not cost you the money you paid for the home.
Can I shop for title insurance?
Usually, yes. Title services appear in section C of the Loan Estimate, the services you can shop for, and the lender must give you a list of providers in your area. The CFPB estimates that shopping could save as much as $500 on title services alone. Compare the bottom-line total, since premiums, search fees and settlement fees are quoted separately.
Do I need new title insurance when I refinance?
The NAIC says you must buy and pay for a new lender's policy when you refinance, because it protects the new loan. Generally you do not need a new owner's policy if you bought one when you purchased the home.
Sources
- CFPB: What is lender's title insurance? (protects the lender against problems with the title; usually required; does not protect your equity; you are the first person responsible if someone sues)
- CFPB: What is owner's title insurance? (protects the homeowner against claims from before the purchase, such as a previous owner's unpaid taxes or unpaid contractors; total cost usually lower with the same provider for both policies)
- CFPB: Shop for title insurance and other closing services (what title services include; section C of the Loan Estimate; the lender's list of providers; compare the bottom-line total; could save as much as $500 on title services)
- CFPB: Factsheet, TRID title insurance disclosures (lender's policy under services you cannot or can shop for; owner's policy in Other Costs marked optional; the simultaneous rate and the disclosure formula, with hypothetical rates of $1,175, $2,568 and $200) (PDF)
- CFPB model Loan Estimate H-24(G), page 2 (title items in section C; "Title – Owner's Title Policy (optional)" in section H) (PDF)
- CFPB: Can my final mortgage costs increase from what was on my Loan Estimate? (providers from the lender's written list: total may rise up to 10 percent; providers not on the list: any amount)
- NAIC: Consumer Guide to Title Insurance (covered problems; owner's and lender's policies, coverage amounts and duration; what is not covered; who usually pays; one-time premium at closing; refinancing; enhanced policies about 20 percent more; title search, commitment and exceptions; closing protection letters; affiliated business disclosures; simultaneous issue) (PDF)
- NAIC: Title insurance topic page (one-time premium handled at closing; owner's policy in effect as long as you own an interest; lender's policy until the amount financed is repaid; unpaid taxes of a prior owner, forgery, fraud and record errors as examples)
General information based on the sources above, not tax, legal or financial advice.