Do I Need Title Insurance for a Refinance of My Own Home?

Title insurance protects a home against liens or other claims.
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Buying or refinancing a home can be an arduous journey. There are so many things involved – one of which is the purchase of title insurance. Whether buying or refinancing, it’s important to understand the purpose of title insurance and well as the different types of policies. In doing so, a homeowner can make an informed decision on what is actually required for the transaction at hand.

Understanding the Purpose of Title Insurance

The true purpose of title insurance is to protect either the buyer or lender in a purchase or refinance agreement for outstanding claims against a property at the time of the transaction. After performing an exhaustive search for liens or other claims against the property, a title company will issue a policy to insure for monetary loss arising from encumbrances that may surface up to the value of the policy issued. This is not to be confused with private mortgage insurance, as known as PMI, which provides protects the lender if a homeowner defaults on a loan.

Lender’s Title Insurance

Whether an original purchase or refinance, a lender’s title insurance policy is always required when trying to secure a mortgage. Since the lender will have a substantial interest in the property, they want to make sure they are covered for the total amount loaned. However, the lender’s policy only covers a lender’s loss arising from a title deficiency. It does not provide insurance for the owner’s loss.

Owner’s Title Insurance

An owner’s title insurance policy is issued to protect the person buying or refinancing property. This policy is issued in addition to the lender’s title insurance policy. However, an owner’s policy is not required; a homeowner can proceed at their own risk without one. If title is found clear during the search for the lender’s policy, many owners believe they are safe to proceed without purchasing their own policy. Additionally, if an owner’s policy was issued during the original purchase, many homeowners believe a new policy isn’t necessary for refinancing since they were in control of the property and should know if a property lien has been executed.

Potential Title Insurance Discounts

If a homeowner decides they want the peace of mind an owner’s title insurance policy brings, there are ways to receive potential discounts when purchasing an owner’s policy. First, since the owner is paying for the lender’s policy, many title companies will offer a discount if owner’s insurance is purchased at the same time. Second, some title companies will grant a discount for a refinance by updating a policy from the original purchase.

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