Lender’s Title Insurance Cost, Benefits and Necessity: Understanding Your Insurance Needs
While owner’s insurance is sometimes optional, you don’t get the same benefit when it comes to lender’s title insurance, which is also known as a loan policy. As long as you’re using a mortgage provider such as a bank to pay for your new home, you or the home seller will have to cover lender’s insurance costs regardless of the circumstances. Understanding the costs, advantages and necessity associated with having lender’s title insurance can help you better understand the necessity for owner’s insurance and why your loan policy won’t help you too much in the event that a claim has been filed against you, or other title problems are uncovered.
How Much Does Lender’s Insurance Cost?
Title insurance normally costs anything from $400 to several thousand dollars, depending on your mortgage amount, the insurance amount, whether you get additional coverage and whether your state has fixed title insurance fees. Lender’s insurance is typically more expensive than owner’s insurance when the two are purchased together, since lender’s insurance also has to cover the costs of the title search and the initial work required for any resolutions. On the other hand, your loan policy likely won’t be much more expensive than a customized owner’s insurance policy, especially if you paid for additional coverage options to be protected from title defects that most insurers will not defend you against under normal circumstances.
The Benefits You Gain from Lender’s Title Insurance
While lender’s title insurance won’t help you with many of the costs you have to pay in the event that a claim was filed against you or an outstanding lien was discovered linked to your property, it will defend the property itself. Your lender will want to make sure that their investment is secured, so you don’t have to worry about someone else taking your property or another bank leading it to foreclosure.
Why Do Lenders Insist on Loan Policies?
It’s possible for there to errors or omissions to occur in deeds. Also, title forgeries are quite common, and in some cases, undisclosed heirs might appear and claim the property as their own. Also, mistakes in examining the property’s historical records and past liens can lead to many potential problems for lenders – to the extent that the costs involved for solving these title problems can be as high as several hundred thousand dollars. Under those circumstances, the risks outweigh the benefits when it comes to paying you the mortgage, and the lender would actually lose a lot of money; so why would your lender grant you the mortgage in the first place? With lender’s title insurance, many of those problems will go away, and you don’t have to worry about your lender threatening to pull away from the deal.
Claims Made with Title Insurance – Is Lender’s Insurance Worth It?
One might wonder whether it’s even worth the expense to pay for lender’s insurance. However, lenders know that the amounts covered by title insurance companies border on billions of dollars today, and have already been higher than $500 million as early as the mid-2000s. Since there are fewer home buyers who buy their homes for cash, lender’s insurance is a large part of that amount. As a result, the risk of running into title issues and having to cover the costs of disputes and litigation can be quite high, so a good lender’s insurance policy is definitely worth the cost.