Background

Title insurance began in the U.S. in the late 1800s to address hidden defects in chain-of-title records. Today it’s a routine part of mortgage closings because lenders need assurance their lien is enforceable and free from earlier claims. The Consumer Financial Protection Bureau outlines how title insurance and title searches fit into the home‑buying process (CFPB).

How title insurance protects a lender’s mortgage

  • Lender’s policy focus: Lenders require a lender’s title insurance policy to protect the lender’s interest in the property up to the loan amount. If an undisclosed lien, ownership dispute, or title fraud later reduces the mortgage lien’s priority or value, the lender’s policy pays legal costs or settlements that protect the loan.
  • One-time premium: Title insurance is typically purchased once at closing. The lender’s policy amount normally equals the original loan balance and remains in force until the mortgage is paid off.

How an owner’s policy differs

An owner’s title policy — optional but commonly recommended — protects the buyer’s equity and ownership rights up to the purchase price. Unlike the lender’s policy, the owner’s policy stays with the owner and covers title defects not found in the public record.

What a title search and closing do

Before closing, a title company runs a title search to surface recorded liens, judgments, easements, or gaps in the ownership chain. Many issues are cured before closing (for example, paying off an old lien). When issues remain or are hidden, title insurance is the safety net. (See more on how insurers handle claims in our guide to the Title Insurance Claims Process: When Coverage Kicks In).

Common risks title insurance covers

  • Undisclosed heirs or forged signatures
  • Prior mortgages or tax liens not paid off
  • Clerical errors in public records
  • Fraudulent conveyances or identity fraud

Typical costs and who pays

Costs vary by state and by purchase price. A common estimate is roughly 0.5%–1% of the purchase price for combined policies, but some markets charge less or more. The buyer often pays for the owner’s policy; who pays for the lender’s policy depends on local custom and negotiation — ask up front. For a deeper look at who typically pays fees and what the policies cover, see our explainer: Title Insurance in Home Loans: What It Covers and Who Pays.

Real-world context and tip from practice

In my 15 years helping borrowers, I’ve seen small, recorded problems — unpaid taxes, missing signatures, or clerical errors — become expensive disputes after closing. A title policy saved one client thousands when an old tax lien surfaced; the insurer hired counsel, cleared the lien, and defended ownership. Practical tips:

  • Ask for the title commitment early and read the exceptions list.
  • Shop title insurers and compare the owner’s policy price; the policies are standardized but premium rates vary by company and state.
  • Consider common endorsements lenders may require (e.g., survey, zoning, or plat endorsements) to cover specific risks.

When title insurance won’t help

Title insurance covers defects that existed before your policy’s effective date and that are within the policy’s terms. It generally won’t cover problems you create after closing (for example, a later mechanic’s lien you allow). Also, coverage depends on policy language — read exclusions and endorsements carefully.

How title problems affect closings

Unresolved title defects can delay or stop mortgage funding. Our related article explains the most common title issues that hold up closings and solutions underwriters accept: How Title Issues Can Hold Up Your Mortgage Closing.

Authoritative sources

Professional disclaimer

This article is educational only and not legal or financial advice. For specific title or closing questions, consult a qualified real estate attorney, your lender, or a licensed title agent.