Title insurance explained

Two policies, two people protected

Lender’s policy. It protects the lender against problems with the title, such as someone with a legal claim against the home. The CFPB says it only protects the lender, not your equity, and it is usually required to get a mortgage.

Owner’s policy. It protects you if someone later says they have a claim against the home from before you bought, for example for unpaid taxes or unpaid contractor work. The CFPB’s factsheet says it indemnifies you for a loss and also requires the insurer to defend your title against certain claims. It is “typically not required by the creditor” and is optional. Some companies sell an “enhanced” version with more coverage.

No federal agency sets title premiums. For one state’s rate rules, see Texas title insurance.

What the lender’s policy must look like

Fannie Mae’s Selling Guide requires, for loans originated on or after January 1, 2024, a 2021 ALTA Loan Policy (or an equivalent short form). The coverage “must at least equal the original principal amount of the loan,” and the policy must include an environmental protection lien endorsement (Selling Guide B7-2-03). On a $320,000 loan, for example, the lender’s policy must cover at least $320,000.

For FHA, the lender must order a title commitment and obtain title evidence showing good and marketable title. If an exception affects value or marketability, the lender must ask FHA for a waiver, and if title is not marketable, the loan is not eligible for FHA insurance (Handbook 4000.1). On a VA loan, the veteran may pay a reasonable and customary amount for title examination and title insurance (38 CFR § 36.4313).

How it shows up on your forms

The Loan Estimate and Closing Disclosure treat the policies differently (CFPB factsheet, 12 CFR § 1026.37):

• The lender’s policy appears in the Loan Costs table, under services you can shop for or cannot shop for, depending on your lender’s setup. The label starts with “Title -”.
• The owner’s policy, when the lender does not require it, appears in the Other Costs table as “Title - Owner’s Title Policy (optional)”. If the seller pays, the “(optional)” tag is not required on the Closing Disclosure.

A worked example from the CFPB

The CFPB’s factsheet uses these assumed rates: full lender’s premium $1,175, full owner’s premium $2,568, and a $200 simultaneous lender’s premium when both policies come from the same company.

The $1,593 comes from ($2,568 + $200) - $1,175. The disclosed owner’s figure can differ from the quote your title agent gives you, but the two policies add up to the same total.

Shopping and who pays

The CFPB says title services are the largest shoppable item at closing, that your Loan Estimate lists the services you can shop for in section C, and that your lender must give you a list of local providers. You may be able to use another provider if your lender agrees. The CFPB adds that the total is usually lower if the same provider issues both policies.

Federal law limits one tactic: a seller of property bought with a federally related mortgage cannot require, directly or indirectly, that the buyer buy title insurance from any particular title company. A seller who does is liable to the buyer for three times all charges made for that insurance (12 U.S.C. § 2608). Which side pays for the owner’s policy is set by your contract and local custom; see Texas closing costs for one state’s contract.

For taxes, the IRS says your basis includes owner’s title insurance (Publication 551). For the rest of your closing statement, see closing costs explained, and for the lender’s other requirements see FHA loans and VA loans.

Where states differ

Title insurance is regulated by states, and rates, customs on who pays and forms differ. Fannie Mae and FHA set the rules for the lender’s policy, but not its price. See California closing costs and Texas title insurance for two different systems.