Why title insurance matters at closing

Title insurance is a closing-line item for almost every mortgage transaction in the U.S. Its core function is to make the title marketable — meaning the lender and buyer both have a defensible claim to the property. For lenders, a clear title is a condition of funding the mortgage. For buyers, title insurance is the primary protection against unknown liens, clerical errors, boundary disputes, undisclosed heirs, and easements that could erode property value or ownership rights.

In my 15 years working with homebuyers and mortgage teams, I’ve seen title problems delay closings for days to months and, in rare cases, derail purchases entirely. Proper title work at the start shortens closing timelines, lowers legal exposure, and prevents last-minute demand letters or insurance objections that can stall lender funding.

Two policies and who they protect

  • Lender’s title insurance: Required by most mortgage lenders. It protects the lender’s lien position on the property up to the loan amount. The lender’s policy covers the lender (not the homeowner) against losses from covered title defects.

  • Owner’s title insurance: Optional but strongly recommended. It protects the buyer’s equity and ownership rights for as long as they or their heirs hold the title. An owner’s policy typically costs more because it covers the full property value rather than just the loan balance.

Both policies stem from the same underwriting process and title search; issuing both at once usually reduces total cost versus buying them separately later.

How title work flows into the mortgage closing timeline

  1. Commitment stage: After the purchase contract and mortgage application, the title company performs a title search and issues a preliminary report or title commitment listing defects, liens, or requirements to insure.
  2. Clearing defects: The seller, buyer, or attorneys resolve defects (payoff liens, obtain releases or affidavits, correct public records). Some issues require legal action or survey corrections, which extend the closing timeline.
  3. Final policy and closing: Once title exceptions are cleared or agreed-upon exceptions noted, the title insurer issues the final policy and settlement agent disburses funds. Lender funding is often conditioned on receipt of the final lender’s title policy.

If the title search discovers title defects that cannot be cleared quickly, the lender may delay or deny funding until the defect is resolved or insured around. A common example is an outstanding tax lien or an unrecorded mortgage.

Common title defects that affect mortgage closings

  • Prior liens (tax liens, judgments, contractor liens)
  • Errors in public records (misspelled names, incorrect legal descriptions)
  • Forged or fraudulent signatures in a prior deed
  • Undisclosed heirs or missing probate actions
  • Undocumented easements or boundary disputes

Each defect creates risk that either the lender or buyer could lose priority or ownership. The title company will list these as exceptions; some can be cleared before closing, others can be covered by endorsements or negotiated fixes.

See our deeper coverage of title-specific issues and typical fixes in Title Issues That Can Sink a Mortgage: Common Problems and Fixes (FinHelp) for examples from completed closings: https://finhelp.io/glossary/title-issues-that-can-sink-a-mortgage-common-problems-and-fixes/

Who typically pays and state differences

Who pays the title insurance premium varies by state practice, sales contract, and local custom. In some states the seller customarily pays for the owner’s policy; in others the buyer does. The lender’s policy is most commonly paid by the buyer as a closing cost, but those costs are negotiable and sometimes rolled into the loan or split between parties.

Because title insurance premiums and closing customs are regulated at the state level, you should confirm who pays with your real estate agent, attorney, or title officer.

Cost expectations and what affects price

Title insurance is a one-time premium at closing. Costs vary by state, property price, and whether you buy an owner’s and lender’s policy together. State-regulated rate filings and local market competition both shape price. As an example, premiums that might be typical for a mid-priced home in one state may be significantly different in another.

Title premium is often a small percentage of the purchase price, but raw dollar amounts can feel large if the property is expensive. Some lenders allow adding the fee to the loan balance (subject to underwriting rules).

How title insurance reduces lender risk — and why lenders insist on it

Lenders require a lender’s title policy to protect the mortgage lien. The policy protects the lender against losses caused by title defects that would reduce or erase the lender’s security interest. Because the loan is the lender’s collateral, any defect that undermines the lien — for example, a prior recorded mortgage that predates the current loan — is a material risk. The lender’s policy gives lenders a claims remedy and typically must be issued before loan funding.

Real-world scenarios and outcomes

In practice:

  • An unrecorded contractor’s lien can surface after closing. If a contractor claims unpaid work from a prior owner, the title policy may defend the owner and pay covered losses.
  • A forged deed in the chain of title could cloud ownership years after purchase. An owner’s title policy often covers the cost of litigation to establish clear title.
  • A last-minute discovered tax lien can delay funding until the lien is paid or insured against.

From my experience, buyers that purchase an owner’s policy avoid the most risk: the lender’s policy protects only the lender, not homeowner equity. One client avoided a multi-thousand-dollar legal battle because their owner’s policy paid attorney fees to remove a boundary claim.

Negotiation, endorsements, and additional coverage options

Endorsements can extend standard policy protections for specific risks (survey matters, zoning, condominium coverage, or access). Endorsements cost extra but can be prudent when the title commitment reveals unusual exceptions.

In transactions with unusual risks (e.g., rural parcels, old subdivisions, or properties with complex easements), request specific endorsements or expanded coverage. A survey or boundary endorsement often prevents later boundary disputes.

Practical closing checklist related to title insurance

  • Ask for the preliminary title report early and review exceptions with your agent or attorney.
  • Confirm who pays the owner’s and lender’s policies and get that in writing in the purchase contract.
  • Clear or negotiate off-record defects (payoff demands, releases, affidavits) before the scheduled closing date.
  • Consider purchasing an owner’s policy even if the lender requires only a lender’s policy.
  • Keep a copy of all closing and title documents; policies remain valid as long as you own the property.

Common misconceptions

  • “Title insurance is the same as homeowner’s insurance”: It is not. Homeowner’s insurance protects against future property damage and liability; title insurance protects against past title defects.
  • “You don’t need an owner’s policy if the lender has one”: The lender’s policy protects the lender’s interest, not your equity. An owner’s policy is the only policy that protects you as owner.
  • “Title searches find everything”: Searches rely on recorded documents and historical records. Some risks—fraudulent or unrecorded interests—can surface later; that’s why a policy and selected endorsements matter.

Practical tips for buyers and lenders

  • Buyers: Budget for owner’s title insurance as a closing cost and weigh it against the price of potential litigation to clear title defects.
  • Lenders: Require a clear title commitment with acceptable exceptions and ensure any required endorsements are listed in loan conditions before funding.
  • Agents/attorneys: Request running payoffs and lien searches early in the process to avoid last-minute surprises.

When title work can delay or cancel a mortgage closing

Closings stall when:

  • Payoff demands from other liens are higher than expected.
  • Required parties (ex-spouse, heir) do not sign releases or affidavits in time.
  • Recorders’ offices have delays or incorrect public records.
  • Surveys or boundary issues take time to resolve.

In such cases, lenders will typically delay funding until title is clear or until they receive sufficient title insurance protections.

FAQs (concise answers)

  • How long does title insurance last? — An owner’s policy generally lasts as long as you or your heirs hold the title; a lender’s policy lasts until the loan is paid.
  • Is title insurance a recurring cost? — No. It is usually a one-time premium at closing.
  • Can you buy owner’s title insurance after closing? — Yes, but it usually costs more. Buying at closing is typically cheaper.

Professional disclaimer

This article is educational and reflects general practices and professional observations. It is not legal advice. State rules, title insurance premiums, and closing customs vary. Consult a qualified real estate attorney, title professional, or closing agent for advice tailored to your transaction.

Authoritative resources and further reading

For related mortgage context and how title issues can affect underwriting or approval, see How Debt-to-Income (DTI) Affects Mortgage Approval (FinHelp): https://finhelp.io/glossary/how-debt-to-income-dti-affects-mortgage-approval/

And for practical examples of title defects and typical fixes, see Title Issues That Can Sink a Mortgage: Common Problems and Fixes (FinHelp): https://finhelp.io/glossary/title-issues-that-can-sink-a-mortgage-common-problems-and-fixes/

This guidance draws on professional practice and commonly accepted title insurance processes current as of 2025. If you’re closing a mortgage, ask your lender and title officer to walk you through the title commitment and required steps to clear defects before funding.