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  • Blue Pointe Title

How Does Title Insurance Affect a Lender?

Updated: Jul 9, 2023

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If you are taking out a mortgage to buy your new property, be prepared to buy a lender’s title insurance policy.

Yes, this type of insurance protects your lender or bank - and not you. And yes, you will likely be required to purchase the policy as a condition of your loan whether you want to or not. The good news is that you will only have to pay the insurance premium one time at closing.

What is it and how does title insurance affect a lender? Let’s find out.

What is Lender’s Title Insurance?

In a nutshell, your title company will review the title of the property you are purchasing and make sure it is free and clear. Unfortunately for one reason or another, things can get missed during the search. So, as a layer of protection, the title company will offer you title insurance.

There is an owner’s title insurance policy that protects you in case there are any issues with the title down the road. But, the lender wants to be protected, too - especially since they provided you with the funds to purchase the property, and title issues can threaten their investment.

Lender’s title insurance protects the bank from any title problems that may interfere with your right to title one day. This includes erroneous recordings in public records, unknown heirs, fraudulent transactions, and so much more. If any issues arise before your mortgage is satisfied, it will be handled without the lender suffering a financial loss.

Why is Having Lender’s Title Insurance So Important?

When a bank agrees to give you a loan to purchase a property, they are taking a risk. It doesn’t matter whether you are the perfect, credit-worthy applicant or a questionable one - handing over hundreds of thousands of dollars for someone’s real estate investment does come with risk.

What if the borrower doesn’t pay?

What if unforeseen circumstances arise that cause hardship?

What happens if an old lien doesn’t show up until after the title search and it pushes the lender’s lien into second place?

To ensure they hold their rightful spot as the 1st lien holder and get paid as such, title insurance is needed. This will allow the lender to be able to feel confident that even if title issues appear that impact their standing, they will still be taken care of without having to put out additional funds to make it happen.

Is Buying a Lender’s Title Insurance Policy Worth it?

To purchase a lender’s title insurance policy, you make a one-time payment at closing. This is often the buyer’s responsibility. Based on the sale price, this premium is usually only a few hundred dollars. That’s very little for the comfort and security it brings. Better yet - be sure to buy an owner’s policy, too.

Though you may not want to be putting out any additional funds when trying to purchase your home, buying a lender’s title insurance policy is worth it. After all, if you decline the coverage, your loan may be declined, too.

You can move forward with your purchase and have the peace of mind of knowing that should anything happen with the title, your lender’s investment is insured - and it won’t fall back on you. Perhaps that makes a lender’s title title insurance policy worth it.

Lender’s Title Insurance at Blue Pointe Title

At Blue Pointe Title, our title experts understand the importance of title insurance and how it affects both lenders and homeowners. We are here to guide you through the title process and answer any questions you may have along the way.

Contact us today at (517) 258-1511.



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