Did you know that the average down payment for a new home is over $59,000? Buying a new home is expensive and comes with a lot of fees that include more than the down payment.

For instance, you have to purchase lender's title insurance and should obtain owner's title insurance as well. Title insurance policies provide the lender and buyer legal and financial protection against ownership issues from the past.

What are the differences between a lender's policy and an owner's policy? Keep reading to find out.

WHAT IS LENDER'S TITLE INSURANCE?

Unless you purchase a home with cash, you are likely borrowing money from a mortgage lender. These lenders will require you to obtain a Lender's Title Policy, also known as a loan policy.

Lender's title insurance protects the lender and their investment in you. In case of a title defect, this policy will come in handy for the lender but will not protect you.

Some of the common title defects that can arise include:

• Contractor claims
• Tax liens
• Debt claims against the property
• Unknown co-owners or heirs

A standard lender title insurance policy will cover these defects more often than not.

WHAT IS OWNER'S TITLE INSURANCE?

If you want to protect yourself and your investment when buying a home, you need to obtain an owner's policy. Although an owner's title insurance policy is not required, it is recommended to buy one in addition to a lender's policy.

With this policy, you will have protection from claims against the title that predate the purchase of the home. The coverage is almost identical as owner's policies protect you from common title defects as well.

Owner's policies offer additional coverages under some circumstances. This extra coverage is costlier but is beneficial if there is a significant risk to purchase the property.

WHAT DOES TITLE INSURANCE COVER EXACTLY?

Before you can close on your home, a mortgage lender asks the title company you choose to perform a title search. During the search, they will check for claims against the property or other prior disputes.

When you purchase title insurance, you'll likely be entitled to the following main protections:

Foreclosures

Title insurance will protect you from financial liability if prior foreclosures on the property arise. Not all title warranties apply to a foreclosed property.

The real estate agent you work with and the title company should check the property beforehand, but certain events could be missing from the records.

Liens

Property servicers or creditors who have not been paid for previous services could have title claims against the home you want to buy. In this case, another individual or company might be entitled to certain assets.

Owner's title insurance clears your name from the financial responsibility associated with the liens created before the purchase of your home.

Easements and Encroachments

If an issue were to diminish the value or size of your new property, homeowner's insurance will help. In contrast, title insurance will cover the repairs associated with eliminating easements.

Fraud and Forgeries

If a home sale is not legitimate, title insurance can help the new owner and lender. This might happen if the title deed belongs to an existing heir or if the deed was forged.

HOW TO APPROACH TITLE INSURANCE

Many know they need to buy title insurance but they don't have a lot of background information on the topic. Along with knowing the differences between each policy, knowing how to approach the purchase is key.

This is what you should know as a buyer about title insurance:

• Title insurance is often regulated
• Owner's title insurance is a one time cost that lasts for as long as you own the home
• Buyers select the lender's and owner's insurance company

It's also important to note that the party who is responsible for paying these insurance policies varies from state to state.

In some states, the buyer has to pay for both policies. In other states, the seller might pay for one or both policies. A lender should provide information about this during the application and closing process.

The requirements of coverage protections for title insurance policies vary slightly depending on the state as well. To confirm that the coverage you choose conforms to the law, check with your state's government page.

THE CONSEQUENCES OF AVOIDING AN OWNER'S POLICY

When buying a home, a lot of things can go wrong during the real estate transaction. If a property doesn't have a clear title or the title is lost, the buyer will have out-of-pocket costs.

Even if problems don't immediately arise, the owner's title insurance policies will help. If there is a challenge to the sale's validity or a claim against home value comes to light, a title insurance company will step in.

Once you decide to sell your property, the owner's title insurance will help if a title issue arises. The title company has to perfect the title defect including lawyer fees if you end up in court.

When you don't have this policy, you'll be expected to pay out of pocket for costs during the purchase and sale of your home.

TITLE INSURANCE VS. HOMEOWNER'S INSURANCE

Homeowner's insurance is required by the lender like lender's title insurance. However, the two are not the same.

Homeowner's insurance insures your home and the belongings inside it against damage from vandalism, theft, fire, storms, etc.

If your down payment is less than 20% of the purchase of your home, the lender will also require you to take out mortgage insurance. This will protect the lender if you default on your payments.

Title insurance will protect you against problems that come up regarding the title of your new home.

LENDER'S INSURANCE VS. OWNER'S INSURANCE: THE MORE YOU KNOW

When you understand the differences between a lender's policy and an owner's policy, buying a home is a much easier process.

Lender's title insurance is required by a lender to protect them from issues with the title deed. To protect the purchase of your home and avoid coming out of pocket, purchasing owner's title insurance is necessary.

With the help of this guide and the right title insurance company, you'll be protected. For a quote on a lender's or owner's title insurance policy, contact us today.