Lower interest rates may have motivated you to refinance your home. These lower rates can save you a tremendous amount of money over the life of a loan, but you should also expect to pay the lender the typical closing costs associated with any new loan, including service fees, title insurance protection and other miscellaneous expenses listed on your Closing Disclosure.
Why do I need to purchase a new title insurance policy on a refinanced loan?
To the lender, a refinance loan is no different than any other home loan. So, your lender will want to ensure that its new loan is protected by title insurance, just as the original lender required. Therefore, when you refinance you may be required to buy a new title policy as a protection for your lender.
Why does a lender need title insurance?
Most lenders generate loans and then immediately sell those loans to secondary market investors, such as FannieMae. FannieMae, in order to protect its security interest in the loan, requires title insurance coverage. Even the lenders who keep the original loans in their portfolio are wise to get a lender's policy to protect its investment against title related defects, similar to how an owner's policy protects the buyer/homeowner.
When I initially purchased my home, didn't I buy a lender's policy then?
You likely did! However, if you did buy a lender's policy when you purchased your home initially, the lender's policy remains in force only during the life and full amount of the loan that was insured. If you refinance, the old loan is paid off (the "life" of the loan expires) and a new loan is issued for the new lender who will require a title insurance policy listing their details and loan amount.
What about my original title insurance policy?
When you bought your home, you likely purchased an owner's title policy. The owner's policy protects you from title defects for as long as you or your heirs own the home. When you refinance, the lender will often require that you purchase them a new lender's policy to protect their security interests from title defects on the property. Therefore, you are buying a policy to protect the lender, not yourself, as your prior owner's policy is still in effect.
What could possibly have happened since I purchased my home which warrants a new lender's policy?
Since the time of the original loan, you may have taken out a second trust deed on the house or had mechanic's liens, child support liens, or legal judgments levied against you and/or your property - events that could result in serious financial loss to an unprotected lender. Regardless if it has been only 6 months or less since you purchased or refinanced your home, a myriad of title defects could have occurred in that time. While you may not have any of the above or more recorded against you, many homeowners do. The only way for the lender to adequately protect itself is to get a new lender's policy each time you purchase or refinance a home. The good news is, unlike homeowner's insurance which is paid annually, a lender's title policy is a ONE TIME premium paid at closing!
Do you have any questions about refinancing? Let us help!
We are happy to assist in all your upcoming transactions with unmatched customer service, whether you are looking to refinance or need somewhere for your new contract. Reach out to our team to get started!
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