Closing questions
What is the difference between an owner's policy and a lender's policy?
An owner's policy insures the buyer for the purchase price. A lender's policy insures the bank for the loan amount. How the two differ on a New York closing.
What is the difference between an owner's policy and a lender's policy?
Quick Answer
Both policies rest on the same title search and the same commitment. Schedule A of each names its insured and its amount, and that is where the difference starts: the owner's policy names you at the purchase price, the lender's policy names the mortgage holder at the loan amount.
Duration differs as well. The lender's policy is tied to the life of the mortgage and drops away when the loan is satisfied or refinanced with a new lender. The owner's policy runs as long as you hold title and continues in favor of your heirs after that.
The exceptions can differ too. Lenders commonly require endorsements the owner's policy does not carry, and some standard exceptions in an owner's policy are removed on the lender's side because the loan program will not accept them. Read both Schedule B sections rather than assuming they match.
On a refinance there is usually no owner's policy at all, only a new lender's policy for the new loan. The owner's policy taken at the original purchase stays in force and is not replaced by the refinance. That is one reason to keep the original policy filed with your deed rather than with the loan papers.
Does refinancing cancel my owner's policy?
No. The owner's policy runs from the date you took title and is not affected by paying off or replacing the mortgage. What ends is the old lender's policy, which is why a refinancing lender requires a new one. Keep the original owner's policy with your deed permanently.
Why does the lender need its own policy?
Because the owner's policy insures you, not the bank, and the bank has its own loss to protect: the security of the mortgage lien and its priority against other claims. Secondary market rules for conventional, FHA and VA loans effectively require a lender's policy on nearly every financed purchase.
What else should you read before closing?
In the glossary
- Owner's policyTitle insurance protecting the buyer's ownership interest, issued for the purchase price with a single premium. Coverage continues while the insure...
- Lender's policyTitle insurance protecting a lender's lien position, issued in the loan amount. Its coverage falls as the principal balance falls and ends when the...
- Schedule AThe part of a title commitment or policy naming the insured, the policy amount, the current owner, the estate insured and the legal description of ...
- EndorsementAn add-on that modifies a title policy's coverage for a defined risk. Endorsement charges come from the filed New York rate structure rather than f...
- Simultaneous issueIssuing an owner's policy and a lender's policy together on one transaction, which reduces the charge for the loan policy under the filed New York ...
Questions this raises
- Do I need an owner's title policy if my lender already requires one?A lender's policy protects the bank, not you, and ends when the loan is paid. What an owner's policy adds on a New York purchase, and what it costs...
- What amount is the lender's policy issued for?The lender's policy is written at the loan amount, at a simultaneous issue rate when an owner's policy is issued too. How changes before closing ar...
- What is title insurance?Title insurance covers defects in a property's past: old liens, recording errors, forged deeds, undisclosed heirs. How the coverage works in New York.
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