If you are about to close on a home, you have likely gone over the settlement statement with a fine-tooth comb. Many first-time home buyers are shocked when they realize that they have not one but two separate charges for title insurance..
Although some people assume this is a mistake and attempt to have the second charge removed, including two title policies for a residential property purchase with a mortgage is actually standard procedure. After all, you won’t be the only party with finances tied up in this transaction.
There’s a policy for you and one for the lender
The line items related to title insurance for your upcoming home purchase will likely be different for the buyer’s policy and the lender’s policy. When you make an offer on a property, you will first deposit earnest money when making an offer and then transfer a down payment amount which will typically be between 2% and 20% of the purchase price.
In other words, the lender will be the one transferring between 80% and 98% of the home’s value to a third party. Their policy protects them from any losses if a claim against title arises while there is still an outstanding balance on the mortgage. If you lose the property, the lender will receive repayment for any amount still owed on your mortgage.
The buyer’s policy is the one that actually protects you as the new homeowner. This policy will pay for an attorney if someone attempts to bring a title claim against your property and will also reimburse you if you are unsuccessful in defending your ownership of the property against the challenge. While it may seem superfluous to have two separate title insurance policies, in reality, both you and the lender require protection from title claims that could end your ownership interest in the home.