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Do You Need Title Insurance For Refinance Loans?

5th May 2022

Do You Need Title Insurance For Refinance Loans?

Title insurance is an all-important form of insurance for homeowners and homebuyers. But, most people are shocked to find that refinancing their mortgage means purchasing another policy. Here is why it is necessary to buy title insurance for refinance loans.

The Importance of Title Insurance for Refinance Loan

When you first purchase a home, you will find that there are many closing costs associated with the sale. One of these costs is title insurance.

Before you buy a house, a title company will typically perform a title search. This will help uncover any issues that ples of such issues include missing heirs, undisclosed liens, and mistakes in paperwork. Title companies will then work to resolve these issues for you.

Sometimes, though, a title search will not completely uncover all title issues. This is where title insurance comes into play.

Lender's title insurance protects the financial interests of mortgage lenders in the event of a missed title defect. It essentially ensures that they won't lose money in case a previously unknown heir shows up and claims ownership of the property or any other title issue. Most lenders require buyers to purchase lender's title insurance (also known as a loan policy) when taking out a loan.

Now, when you decide to refinance a loan, you might be surprised to find that your lender will ask for another title insurance policy. Your first thought you. Don't worry, though - it's all part of the process.

Do You Need a New Loan Policy When You Refinance a Home?

The short answer is yes. Lender's title insurance only typically lasts for the life of the loan. As such, when you refinance (or take out a new loan), it will require a new policy.

Even if you are borrowing from the same lender for the same property, you will need to buy lender's title insurance again. The same applies whether the first loan was only a few months ago or many years ago. The simple reason behind it is, again, to protect the lender in case of issues with the title as new problems can arise in between.

Owner's Title Insurance for Refinance: Is It Required?

Title insurance comes in two forms. The first is lender's title insurance, which was discussed in the previous section. The second is owner's title insurance, which applies to homeowners and their heirs.

As its name suggests, owner's title insurance protects the owner (you) and your interests should title issues come to light. Unlike lender's title insurance, though, owner's title insurance is not something you need to buy again when you refinance a loan.

Owner's title insurance isn't mandatory, to begin with. Most lenders require you to buy a loan policy, but owner's title insurance is typically optional. Still, it's a good investment because it's affordable and can save you a lot of money in the event of a title problem.

When you buy owner's title insurance, it will remain in effect for as long as the property remains under your ownership or the ownership of your heirs. That's right - it extends to your heirs, too. But, if you purchase a new property, your current policy won't apply. You will need a separate and new owner's title insurance policy for that new house.

For a lot of people, purchasing a home is one of the biggest investments they will make in their lifetime. Homes aren't cheap, and adding another expense on top of it can be exasperating.

Fortunately, title insurance - both lender's title insurance and owner's title insurance - is usually rather affordable. When you buy them together, title insurance costs about 0.5% to 1.0% of the home purchase price. The average price of a home is about $300,000 as of writing, so that puts the average price of title insurance somewhere between $1,500 to $3,000.

That might sound like a lot, but when you put things into perspective, it's actually a decent price. Title insurance is a one-time fee, which means you don't have to pay for it annually. Of course, as discussed previously, you will need to buy another policy for your lender if you decide to refinance a home.

Do You Need Title Insurance for Refinance Loans? Answered!

Now that you know how title insurance works, you can save yourself the trouble of worrying about its cost. Title insurance is helpful, and it doesn't cost a lot of money. Plus, they can last a long time. If you refinance your home, though, you will need to buy another lender's title insurance policy.