Types of Title Insurance Policies

When you are ready to close your transaction and buy your new home, you will notice that there are two types of title insurance policies. This is because the home buying process typically involves buying both a loan policy and an owner's policy of title insurance. When you secure a mortgage, you will likely be required by your lender to purchase title insurance.

A lenders policy, often called a loan policy protects the bank or other lending institution for as long as they maintain an interest in the property--typically until your mortgage is paid off or settled.

However, as a buyer, you also want to protect your investment -- and the ownership rights that come with it. This is why it's wise to purchase an owner's policy of title insurance, which will protect your rights as the homeowner for as long as you or your heirs have an interest in the property.

Both title insurance policies not only pay valid claims and legal fees to defend against hidden title issues, but also help to decrease ownership risks by providing a thorough title search prior to the issuance of either policy. There are various customs regarding the purchase of title insurance. n some areas of the country, it is customary for the seller to purchase the owner's policy for the buyer, whereas in other areas the owner's policy may be entirely optional.

If you're considering refinancing your mortgage, you may be surprised to see that you are required to purchase a new lender's policy of title insurance. This is because a lender's policy only provides coverage for the life of a loan. When a home is refinanced, the life of one loan ends and another begins. Thus, a new lender's policy for title is required. Because an owner's policy provides coverage for as long as you or your heirs hold an interest in the property, there is no need to purchase a new owner's policy when refinancing.