Q: We are buying our first home and are stretching our savings to cover the down payment, closing costs, and moving expenses. Our lender sent us a closing cost estimate, which showed that “Owner’s Title Insurance” was optional, while “Lender’s Title Insurance” was required. What is the difference, and why do we need both? — Jim T.

A: Title insurance protects your legal ownership of your home. It addresses claims or disputes related to your property’s “chain of title”—the historical record of ownership. This insurance covers issues like fraud, defective deeds, undisclosed heirs, forgeries, or unpaid liens that could threaten your ownership.

If a problem arises, the title insurer typically resolves it by hiring attorneys on your behalf or compensating you financially.

Two Types of Title Insurance

• Lender’s Title Insurance: This policy protects the mortgage lender’s financial interest in the property. Nearly all lenders require borrowers to purchase this policy. If a title issue occurs, the lender’s policy ensures that the loan amount is recovered.
• Owner’s Title Insurance: This optional policy protects the property owner’s investment. Without it, you could face significant losses even if the lender’s policy covers the loan balance. An owner’s policy safeguards your down payment, home improvements, and accrued equity.

Why Owner’s Title Insurance Matters

Skipping owner’s title insurance could leave you vulnerable. While the lender’s policy covers the lender, it offers no protection for your personal investment in the property. Without an owner’s policy, you risk losing your down payment, the cost of improvements, and any equity in the event of a title dispute.

Fortunately, purchasing an owner’s policy is often cost-effective. When you buy this policy, the lender’s policy is typically available at a discounted rate due to overlapping coverage.

Based on my experience as a real estate broker and investor, I strongly recommend that buyers always purchase an owner’s title insurance policy. It provides invaluable protection and peace of mind for your property investment.