When you look over your settlement statement prior to signing the documents for a new home purchase, there can be a little bit of sticker shock as you realize that there are many costs you weren’t expecting, including title insurance. Many first-time homebuyers feel surprised to learn that there are often two separate title policies included in their closing costs. 

Some people will try to reduce the amount of money they must bring to their closing by trying to eliminate some of those expenses. However, typically, it is in your best interest to make sure that you have a title policy that protects you, as the only one that you can waive is the one that benefits you, not the one that protects your mortgage lender.

What are the two kinds of title insurance?

Title insurance companies typically write two different kinds of policies. The first and most unavoidable is a lender’s policy. This policy insures the money that a lender transfers when they fund a mortgage associated with the sale of a home. In the event that there is a successful claim against the title to the property, the title insurance company will pay the mortgage company the entire outstanding balance on the loan to ensure the company doesn’t lose money. 

You typically have no choice but to cover the cost of a lender’s policy. However, you may be able to avoid a buyer’s policy, which is the second kind of title insurance that protects you as the homeowner. If someone does bring a claim against the title, without a title policy, anything you have spent on the house, including your down payment and the amount of your monthly mortgage payment that goes towards your principal balance, will wind up lost. 

Not only will you be out of a house, but you will be out of the money you have spent on that house. A buyer’s policy ensures that you will have a lawyer to represent you against title claims and financial compensation if the claim proves successful. For more information, talk to an experienced real estate attorney today.