What Is an Owner’s Title Insurance?

The process of buying a home can be exhausting and, frankly, a little confusing at times. Not only do you need to worry about navigating your offer, finalizing your mortgage loan, and understanding the home insurance buying process, but there are also multiple different products and services to consider purchasing along the way.

One such product you may need (and want!) to buy is owner’s title insurance coverage. Read on to learn more about this coverage, what it entails, whether it’s required when purchasing a home, and how an owner's title insurance policy can give you added peace of mind.

Key takeaways

• Owner’s title insurance policies protect the buyers if there is a legal issue or if other defects arise with the property's title.

• You can expect to pay anywhere from $1,000 up to several thousand dollars for an owner's title policy.

• Lender’s title insurance is usually required, and the cost may be rolled into your closing costs when buying a home.

How does an owner’s title insurance work?

For homeowners, title insurance policies provide protection if any issues arise with the property’s title, either at the time of purchase or later on down the line. Put simply, title insurance protects the ownership rights of your property.

During the home buying process, the title, or documentation of ownership for the property, is transferred from the existing homeowner (the seller) to the new owner (the buyer). While many big hiccups are caught at the time of purchase just by a title search and combing public records, some can remain hidden. In fact, the buyer could potentially encounter issues related to the property’s title for years to come. These might include previous unpaid debts, back property taxes, or problems with wills from previous owners.

Defending your home’s ownership and settling these types of problems can be a costly headache. Thankfully, if these issues do arise, an owner's policy of title insurance may provide the buyer with financial protection for years to come.

Owner's title insurance is sometimes purchased for the buyer by the seller to provide both parties with some reassurance during the home-buying process. However, this isn’t always the case, and if you’re buying a home, you should expect that you may need to pay for title insurance yourself.

Owner’s title insurance vs. lender’s title insurance

There are two forms of title insurance coverage to note: owner’s title insurance and lender’s title insurance. These policies are often confused with one another and generally cover the same things. However, the main difference between the two policies is who they protect.

• An owner’s title insurance policy protects the buyer if a legal issue arises with the title, even years down the line.

• A lender’s title insurance policy protects mortgage lenders from the same issues up to the dollar amount they loaned the buyer.

It’s also important to note that a lender’s title insurance policy is typically required when you take out a home mortgage loan, with coverage often lasting for the life of the loan. So, if you’re in the process of buying a home, be sure to take this purchase into account so you can budget properly.

Looking for even more coverage? Enhanced title insurance is another option to consider. This title policy broadens your protection plan, providing you with more coverage for things like liens against the property or building permit issues.

What does owner’s title insurance cover?

For new homeowners, title policy coverage protects against any unresolved title issues that may have started before ownership of the property was transferred. If undetected and unresolved, these issues can crop up and cause costly problems once you own the property. From overdue HOA insurance fees and incorrect paperwork to fraud and previous lawsuits, there are many problems that you could be held responsible for clearing if you don’t have title insurance.

Here is a list of potential situations that an owner's title insurance policy would cover:

• Incorrect or fraudulent paperwork

• Issues with wills from previous owners, including inconsistencies and unknown heirs to the property

• Lawsuits that were opened before you purchased the home

• Lien and levies from lenders, government agencies, creditors, and contractors

• Missing information

• Overdue HOA fees

• Title defects

Your coverage can help resolve eligible issues and claims against the property, including auxiliary expenses like legal fees, third-party experts, research hours, and court filings.

What doesn’t an owner’s title insurance cover?

Combined with adequate homeowners insurance coverage, an owner’s title insurance policy can give you peace of mind that your property is protected from a wide range of potential problems. However, it doesn’t cover every possible situation.

Since owner’s title insurance only protects against defects related to the property’s title, it won’t protect you from any litigation, liens, or damage that occurs to your home after you purchase it. It also won’t financially shield your earnest money if a title issue prevents you from closing on the home in the first place. Owner’s title insurance also won’t protect the money that the mortgage company is lending you for your purchase (this is the job of a lender title insurance policy for the lender’s benefit).

Do you need owner’s title insurance?

Though your lender may require you to buy a lender’s policy, you technically aren’t required to purchase owner’s title insurance. So, you might wonder, “Should I buy owner’s title insurance?”

As a homeowner, you should seriously consider adding this coverage to your projected closing costs to ensure you're fully protected against any missed problems. Issues stemming from your home’s title can sometimes take years to be discovered. Unless you have title insurance, you could find yourself on the hook for something that wasn’t your fault, and resolving these issues is often costly.

To fully protect your interest in your property, getting title insurance is a no-brainer, especially if you have multiple real estate investments. Just as with homeowners insurance costs, title insurance is an expense you hope never to need but will be glad to have if a situation arises.

The pros and cons of having owner’s title insurance

There are many benefits and drawbacks to buying owner’s title insurance. Understanding both sides of the purchase can help you make the most informed decision when buying your next home.

Pros

• Title insurance provides you with financial protection against certain missed issues with your home’s title, sometimes even if they aren’t discovered for years to come.

• Coverage does not expire as long as you (or your heirs) own the property.

• The cost of a policy can be included in your home purchase negotiations, and you may be able to get the seller to cover some or all of the expense.

Cons

• A title insurance policy only protects against issues related to your home’s title; there is no coverage for other missed issues, such as physical defects in the home.

• Since this policy only protects you, the homebuyer, you may also be required to purchase a lender’s title insurance policy for your mortgage lender.

• Title insurance doesn't protect against other perils (like fire, flood, theft, etc.) or provide coverage for title issues arising after you've bought the home.

Who pays for the owner’s title insurance?

Even though owner title insurance is optional, buyers aren’t always on the hook when it comes to paying for this coverage. So, who pays for title insurance?

In many cases, it is indeed up to the buyer to add this optional coverage to their home purchase. This means paying out of pocket for a policy, though the cost may be worthwhile for the peace of mind. In the right market or negotiation, though, you may be able to get your seller to pay for some or all of the title insurance cost on your behalf.

How much is an owner’s title insurance?

Similar to the cost of home insurance coverage, the purchase price of an owner’s title insurance policy will vary by state, title insurance company, and the value of your property. Typically, the premium is a percentage of the cost of the house, so you can expect to pay anywhere from a few hundred to thousands of dollars for owner’s title insurance coverage depending on the cost of the property. Certain states have standard title insurance rates based on your property’s value, so you’ll pay the same for your insurance policy no matter which title company you purchase it through.

As a home buyer, you do have some negotiating power, though. You can request in your offer letter (or future negotiations) that the sellers contribute some or all of the premium toward buying this coverage for you, which can help minimize your total closing costs and keep you protected. However, this cost usually falls on the buyer.

Protecting your investment is probably your top priority as a new homebuyer. Even the most diligent closing team can miss hidden title issues, though, making an owner’s title insurance policy worth its weight. Combined with a homeowners policy, it’s easier than ever to help ensure stress-free homeownership for many years to come.

Still have questions?

Want to know even more about owner’s title insurance coverage? Here are some common questions that buyers often have.

Is owner’s title insurance worth it?

For many homeowners — especially those who do have surprise title issues crop up — the answer is that yes, owner’s title insurance is worth the cost. That’s because the issues a title policy is meant to cover aren’t always evident; by the time they’re discovered, it might be years after your home’s purchase and correcting these issues could be very costly.

Do I need owner’s title insurance when buying a house?

Owner’s title insurance provides buyers with peace of mind that certain hidden issues connected to their home’s title are covered, even if they arise years down the line. Many buyers find this protection necessary and worth the added, one-time expense.

Is owner’s title insurance required or optional?

An owner’s title policy usually isn’t required but can be very beneficial when it comes to protecting yourself and your investment against financial loss. In some cases, your mortgage lender may require you to purchase a lender’s title insurance policy, though this provides coverage for the lender (not you, the buyer).

Where do you buy an owner’s title insurance?

Title insurance policies are offered by title companies… the same ones that help facilitate the purchase and title transfer of your new home. In many states, the rates for these policies are standard, so you’ll pay the same amount for the coverage no matter which title company (and owner’s title insurance policy) you choose.

Do I need owner’s title insurance if I pay cash?

Regardless of how you pay for your home and whether or not you have a mortgage loan, owner’s title insurance is a valuable coverage to have. It helps protect you from hidden title issues that aren’t discovered before closing, which can crop up months or even years later, no matter how you paid for the property.