Lender Title Insurance and Refinancing: Why Its Required
You’ve made the decision to refinance your mortgage. There’s only one thing you didn’t expect. Your mortgage company is requiring lender title insurance…again.
As you know, when you purchase a home, every lender wants to protect their investment. That’s why they require you to purchase lender title insurance at closing.
Homeowner title insurance, on the other hand, is optional. Here at Lilly Title & Settlement, we strongly encourage buyers to protect the largest investment they will most likely ever make. It just makes sense. Even your lender thinks so. That's why they require you to purchase it for them--to protect their investment.
But now, you want to refinance, and your lender is requiring lender's title insurance again. Why? Let’s take a look at some of the most frequently asked questions about refinancing and lender’s title insurance.
As you know, when you purchase a home, every lender wants to protect their investment. That’s why they require you to purchase lender title insurance at closing.
Homeowner title insurance, on the other hand, is optional. Here at Lilly Title & Settlement, we strongly encourage buyers to protect the largest investment they will most likely ever make. It just makes sense. Even your lender thinks so. That's why they require you to purchase it for them--to protect their investment.
But now, you want to refinance, and your lender is requiring lender's title insurance again. Why? Let’s take a look at some of the most frequently asked questions about refinancing and lender’s title insurance.
Didn’t I purchase a lender’s title insurance policy when I bought the house?
Yes. Lenders require it. But here’s the difference. The original lender’s title policy that you purchased was for your old loan. That policy remained in force for the life of that loan.
When you refinance, the old loan is paid off and a new loan is issued. That’s why a new policy is required.
When you refinance, the old loan is paid off and a new loan is issued. That’s why a new policy is required.
What could have happened since I first purchased the home to warrant a new lender’s title insurance policy?
That’s just it. Lenders don’t know what could have taken place since you first bought the house. There could be mechanic’s or child support liens, legal judgments, a second loan on the property, or any number of other possibilities.
All of these situations could cause serious financial losses to an unprotected lender, whether it’s with your current lender or a new lender of your choosing. The only way your mortgage lender can protect the company is through a lender’s title insurance policy.
But there’s also another reason. Most lenders sell their loans to secondary market investors like FannieMae.FannieMae requires title insurance coverage to protect its security interest in the loan.
Even if your mortgage lender does keep the loan, they still want to protect their investment against title-related defects.
All of these situations could cause serious financial losses to an unprotected lender, whether it’s with your current lender or a new lender of your choosing. The only way your mortgage lender can protect the company is through a lender’s title insurance policy.
But there’s also another reason. Most lenders sell their loans to secondary market investors like FannieMae.FannieMae requires title insurance coverage to protect its security interest in the loan.
Even if your mortgage lender does keep the loan, they still want to protect their investment against title-related defects.
What about my homeowner’s title insurance policy? Is it still in effect?
As long as you or your heirs own the home, your homeowner’s policy remains in effect.
Conclusion
While you may not have expected the additional closing cost of lender’s title insurance with your refinance, but it is necessary. Considering how much risk is at stake, it would be unwise for a lender to refinance without purchasing a policy.
Got more questions about lender’s title insurance or title insurance in general? Let us help! We can answer all your questions and help you find the policy that’s right for you.
And when you’re ready to close on your new home, turn to Lilly Title & settlement. We’re obsessed with legal details and closing your loan on-time. Learn more about us here.
Got more questions about lender’s title insurance or title insurance in general? Let us help! We can answer all your questions and help you find the policy that’s right for you.
And when you’re ready to close on your new home, turn to Lilly Title & settlement. We’re obsessed with legal details and closing your loan on-time. Learn more about us here.
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