Owner's vs Lender's Title Insurance, and What Each One Protects

When you take out a mortgage, the Consumer Financial Protection Bureau (CFPB) says a lender's title insurance policy is usually required, and it protects only your lender. A second policy, owner's title insurance, can protect your own investment in the home, and it is optional. A "title insurance" line on your paperwork may therefore not cover you at all. Details below follow CFPB pages last reviewed between 2023 and 2024.

1. What "title" means here

When you buy a home, you receive a document, usually called a deed, showing that the seller transferred legal ownership, or "title," to you. Title insurance can protect you if someone later sues and says they have a claim against the home from before you bought it. The CFPB gives two examples of where such claims come from: a previous owner's failure to pay taxes, or contractors who say they were not paid for work done on the home before you purchased it.

2. Lender's policy: usually required, covers the lender

The CFPB says lender's title insurance is usually required to get a mortgage loan. It protects your lender against problems with the title, such as someone with a legal claim against the home.

The catch is in the scope. According to the CFPB, the lender's policy does not protect your equity, meaning your investment in the home. If someone sues with a claim against your home, you are the first person responsible, and the lender's policy only covers claims that affect the lender's loan.

3. Owner's policy: optional, covers you

Owner's title insurance can help protect your financial investment in the home. The CFPB says you may want to buy it. It describes what the policy is for and leaves the decision to you.

4. Where it shows up on your forms

The CFPB describes where these charges appear on the Loan Estimate and Closing Disclosure:

• Title service fees include the title search fee, the premium for the lender's policy, and other costs tied to issuing the policy. In most states the fee for conducting your closing is part of them too.
• They are listed in section B or C of page 2. If they are in section C, you can shop for them separately.
• An owner's policy, if you choose one, is listed in section H of the Loan Estimate.

That section letter matters. The same line item can be something you can shop for or something you cannot, depending on where the lender placed it.

5. You can shop for it

The CFPB says you can usually shop for your title insurance provider separately from your mortgage, and that doing so could save you money. It also says that if you buy an owner's policy, the total cost is usually lower when you use the same provider for both the lender's and the owner's policy than when you buy them separately.

6. A seller cannot make you pick the company

Sometimes a seller says the house is sold only if you use a particular title company. The CFPB's answer is a flat no. Under the Real Estate Settlement Procedures Act (RESPA), a seller may not require a borrower, directly or indirectly, to buy title insurance from any particular company as a condition of the sale.

7. If the number on the paperwork looks different

Depending on your state, your settlement agent, lawyer, lender, real estate agent, or the title company may give you an itemized list of fees at closing that shows the title insurance cost differently from your Loan Estimate or Closing Disclosure. The CFPB says this does not necessarily mean you are being charged the wrong amount. It is still reasonable to ask the closing agent to explain the difference before you sign.

8. Questions worth asking

• Are the title services in section B or C, and can I shop for them?
• What would an owner's policy cost, and what is the price if both policies come from the same company?
• Which line on my Closing Disclosure is the owner's policy, if any?

9. Key takeaways

• Lender's title insurance is usually required and protects only the lender, not your equity.
• Owner's title insurance is optional and is the policy that protects your own investment in the home.
• Section C of page 2 on the Loan Estimate means you can shop for those services.
• Buying both policies from the same provider is usually cheaper than buying them separately, per the CFPB.
• A seller cannot require you to use a specific title insurance company.

Policy details and pricing vary by state and provider. This is general information, not legal or financial advice.