Title Insurance When Buying a Home: Owner’s vs. Lender’s Policy

Title insurance shows up as one line item at closing, but it’s actually two separate policies protecting two separate parties — and understanding the difference matters, because only one of them protects you.

Two Different Policies, Two Different Beneficiaries

The lender’s title policy is nearly always mandatory if you’re financing the purchase, and it protects only the bank’s financial interest in the property up to the loan balance. It terminates once the mortgage is paid off. The owner’s title policy is the only one that protects your equity if a title defect — an old lien, a forged signature in the chain of title, an undisclosed heir, a surveying error — surfaces after closing. An owner’s policy generally protects you and your heirs for as long as you own the property, with no expiration date tied to a loan balance.

What It Costs

Combined, a lender’s and owner’s policy typically run about 0.5% to 1% of the loan amount. A national study put the average combined premium around $1,337 on a $318,000 home, or roughly 0.42% of value. When both policies are purchased at the same closing, the lender’s policy usually gets a concurrent-issue discount — often $250 to $500 off the standalone rate — so buying both together costs only marginally more than buying the owner’s policy alone.

Who Actually Pays

Payment custom varies significantly by state and even by county. In some markets the seller customarily pays for the buyer’s owner’s policy as a closing cost; in others the buyer pays for everything. The lender’s policy is almost always paid by the borrower, since the lender is the one requiring it as a condition of the loan. This is negotiable in a purchase contract regardless of local custom, so it’s worth confirming who’s paying for what before you’re at the closing table.

Is the Owner’s Policy Worth Declining?

Some buyers are tempted to skip the owner’s policy since it’s optional and the lender’s policy is required either way. Given that it’s often a few hundred dollars more on top of a policy you’re already buying, and it’s the only one of the two that protects the equity you’re putting into the home, declining it to save a small amount at closing is a real risk for a small savings — similar in spirit to skipping adequate homeowners coverage to save on premium.

Written by Samuel, Certified Public Accountant

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