When you’re buying a home, you’ll have to deal with title insurance. But there are two types of title insurance policies: the lender’s policy and the owner’s policy.
The Lender’s Title Insurance Policy
A lender’s title insurance policy, which most lenders will require you to buy when you’re financing a home, is usually based on the dollar amount of your loan. It protects the lender’s investment—the mortgage on the property you’re buying—and saves the lender from loss if a title problem crops up.
The policy amount on a lender’s title insurance policy usually drops each year until the loan is paid off.
Lender’s title insurance only protects the lender; the owner needs his or her own policy for personal protection. The lender’s policy won’t pay the homeowner’s legal expenses if there’s a problem with a title, and it won’t cover the homeowner’s equity in the property, either.
The Owner’s Title Insurance Policy
A homeowner’s title insurance policy is typically issued for the dollar amount of the home’s price. In most cases, you’ll pay a one-time fee when you close on the home, and the insurance lasts as long as you or your heirs continue to have an interest in the property.
This is the title insurance policy that protects you if a title problem comes up that the insurance company didn’t uncover during the title search. Some policies also protect homeowners by paying legal fees that arise while defending a claim to the title.
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