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Why are there 2 title insurance fees on your closing documents?

by | Nov 3, 2021 | Real Estate Practice

Trying to make sense of the settlement statement for your real estate closing is not easy. There are numerous charges, many of which look similar.

Generally, the buyer for the real estate transaction will have to cover the costs associated with the closing. When they finance the transaction with a mortgage, there will be additional fees involved. One of those fees will be a second title policy.

Sometimes, people may think they spotted an inaccuracy when they notice that there are two title insurance premiums included in their closing costs. Rather than being a duplicate charge, that is actually a completely separate form of coverage.

What is the difference between the 2 kinds of title policies?

The main difference between the two kinds of title insurance policies required when someone buys a home with a mortgage is who the policy protects. There will be both a lender’s policy and a buyer’s policy.

Both the buyer and their lender have something at risk in a real estate transaction. The borrower has earnest money and the balance of their downpayment to consider, as well as their future investments in the property. The lender will have six figures worth of money transferring out of their accounts to facilitate the purchase.

Both parties require protection in case a title issue compromises their rights to the property that serves as collateral. A lender’s policy protects them for the money they provide upfront for the transaction. They can receive repayment in full if a title claim severs your rights to the collateral property after the purchase. The buyer’s policy protects you from losing your downpayment and equity if someone brings a claim against the title of your home in the future.

Can you eliminate title insurance costs?

You can avoid paying for a lender’s policy if you make a cash purchase of a property. However, in a financed purchase, you will not be able to decline the lender’s coverage. You may be able to refuse your own coverage, but that leaves you vulnerable if the title issue ever arises in the future. It is typically safer to pay for both policies so that everyone has adequate financial protection.

Making sense of the paperwork involved in a real estate transaction and the need for title insurance will make you more confident as you had to your signing.