Diving Into the Differences Between an Owner’s Policy and Lender’s Policy

Publish Date: 09.01.2022

Author: Kristen Orr

Reviewed by: Kasey Scors

A common question when buying a house for the first time is often: what is title insurance is and do I need it? We already covered that in a previous blog post, which you can read here: Title Insurance.

Another common question is “What is the difference between a Lender’s Policy and an Owner’s Policy?" Even though we brushed over this topic lightly in a previous post, today we are going to take a step forward and get into detail about the differences between the two policies.

The Basics

The main difference between the two policies is that the policies provide different coverage for different parties within a transaction. An owner’s policy protects property owners from covered title defects that existed prior to the issue date of the policy, while a lender’s policy insures that the lender has a valid, enforceable lien on the property. [1]

Owner’s Policy

If a valid claim is filed, your owner’s policy, subject to its terms and conditions, will cover financial loss up to the face amount of the policy. [1] An owner's policy also will provide any legal defense that may be needed under this claim.

An owner's policy is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at the closing and lasts for as long as the buyer has an interest in the property. Only an owner's policy protects the buyer if a defect in title arises. [1]

Lender’s Policy

As previously stated, lender’s policy insures that the lender has a valid, enforceable lien on a property. Most lenders require borrowers to purchase this type of insurance policy to protect their investment.

A lender’s policy provides no coverage to the homeowner. The policy amount decreases as a borrower pays down their loan and will eventually disappear as the loan is paid off. [1]

Overall, it is important to know the difference between an owner’s policy and lender’s policy when being a part of a real estate transaction. We hope you understand the difference between these two policies a bit more now. Thanks for reading!

Sources:

[1] Hayes, Adam. “Title Insurance.” Investopedia, 10 Sept. 2021, investopedia.com/terms/t/title_insurance.asp. Accessed 12 Aug. 2022.