Did you know your lender will require you to purchase a lender’s title insurance if you’re financing a new home? And did you know that lenders’ title insurance only covers the amount of money they lend you? So, a lender’s title insurance policy might not cover your entire property if you only financed a part of the purchase. There are many misconceptions about title insurance, and it’s far more critical to understand than your lender might lead you to believe. Here’s why:
Lender’s Title Insurance Only Covers Loan Amount
Let’s say you took out a loan for $100,000 on a $200,000 property. Your lender will require you to purchase title insurance only for the $100,000 you borrowed. So, if there is a title insurance issue, the bank’s policy you paid for will only cover the $100,000 you borrowed. The other $100,000 in value would not be covered, which is a massive issue for most property buyers.
The Lender’s Title Insurance Expires When the Loan is Paid Off
Another potential issue with lenders’ title insurance policies is that they have an expiration date separate from when and if you sell the property. The bank is only interested in title insurance for as long as they have an interest in the property. Once the loan is paid off, the lender’s title insurance coverage ends. Of course, the policy ends years later when the loan is finally paid off. If nothing happens, you’re in good shape. If something happens, like the title being challenged by a person claiming rights to the property, and if the lender’s title insurance policy is canceled, you will be 100% on your own to cover court costs and whatever arrangements are needed to resolve the issue.
You are Usually Required to Purchase Lender’s Title Insurance
Lenders get paid to protect their interests. Title insurance helps them accomplish that. Because they are lending you money, they can set the requirements to be whatever they like. Of course, you could walk away. However, a lender’s title insurance is usually required by the bank. They can dictate the terms because they have the money.
So what can I do?
Rest assured, there is a title insurance policy that will cover you regardless of the status of your bank’s title policy or loan. You may have to ask your lender or title company, but it is available and purchased by the property owner in most transactions supported by a loan. The policy is simply called an owner’s title insurance policy.
Here is why it’s vital to have your own title policy:
- Your policy will cover the total value of the property.
- Your policy will be slightly more than the lender’s because you are insuring more value for as long as you own the property. The policy won’t disappear when the loan is paid off.
- Your policy will not disappear or reduce coverage value as your loan is paid off.
- Your policy will cover you for as long as you have an interest in the property.
Cortes & Hay has covered our customer’s properties correctly for over 50 years. We have developed and assembled an all-star team eager to help you navigate the property title process. Get in touch with us today to get started on your New Jersey title policy. We would be delighted to take you through the process step by step.