In a typical home sale, the buyer pays for the lender’s title insurance policy because it protects the buyer’s mortgage lender, while the owner’s policy can be paid by either party depending on where the property is located and what the purchase contract says. No federal law decides who pays title insurance at closing, so the answer in your transaction comes down to local custom and whatever the two sides negotiate into the contract.
Lender’s Policy vs. Owner’s Policy
Title insurance comes in two separate policies, and the question of who pays only makes sense once you separate them.
If you are financing the purchase, the lender will almost always require a lender’s title insurance policy as a condition of funding the loan.1U.S. Department of the Treasury. Exploring Title Insurance, Consumer Protection, and Opportunities for Potential Reforms It protects the bank, not you, by covering the outstanding loan balance if a title defect appears later.2Consumer Financial Protection Bureau. What Is Lender’s Title Insurance? Coverage shrinks as you pay the loan down and ends when the mortgage is paid off.3National Association of Insurance Commissioners. Consumer Guide to Title Insurance Because this policy exists for the buyer’s lender, the buyer almost always pays for it.
The owner’s policy is the one that protects your equity, usually up to the purchase price.4National Association of Insurance Commissioners. The Vitals on Title Insurance – What You Need to Know It is not required to close the sale.1U.S. Department of the Treasury. Exploring Title Insurance, Consumer Protection, and Opportunities for Potential Reforms You pay a single premium at closing, and the coverage lasts as long as you or your heirs hold an interest in the property.5American Land Title Association. How Long Does Title Insurance Policy Last? If a covered defect surfaces later, such as a forged deed, an undisclosed heir, or an unknown lien, the policy pays for your legal defense and covered losses up to the policy limit. Who pays for this policy is the real question, and it depends on where you are buying.
Buying both policies at closing from the same insurer usually unlocks a “simultaneous issue” rate that cuts the combined cost significantly compared with buying them separately.3National Association of Insurance Commissioners. Consumer Guide to Title Insurance That is worth knowing before you decide how to divide the cost, because the two premiums together may be smaller than you expect.
Regional Customs That Set the Default
With no federal rule assigning the cost, regional custom fills the gap. These defaults are usually written into the pre-printed purchase agreements that local agents use, so they shape the deal before anyone starts negotiating.
- In much of the South, the seller traditionally pays for the owner’s policy. The reasoning is that the seller is delivering proof of clean title to the buyer.
- In many northeastern areas, the buyer pays for both the owner’s and the lender’s policies as part of the overall cost of buying and financing a home.
- In the West, practice varies not just by state but by county. In some places the seller covers the owner’s policy, in others the cost is split, and in others it falls entirely on the buyer.
Customs can differ between neighboring counties in the same state. The most reliable way to learn what is normal where you are buying is to ask a local title company or real estate board before you write your offer.
Negotiating Who Pays in the Purchase Contract
Local custom is only a starting point. The purchase contract is the document that actually controls who pays, and every line of it is negotiable.
In a slow market with plenty of inventory, a buyer can ask the seller to pick up all title-related fees, often structured as a seller concession that reduces the cash the buyer brings to closing. In a competitive market, a buyer might offer to absorb the owner’s policy premium to make the bid more attractive. Either way, the allocation needs to be written into the contract in plain terms so neither side is guessing on closing day.
A separate federal protection shapes how aggressively you can shop. Kickbacks and referral fees between settlement service providers are prohibited, and anyone who gives or receives a fee for referring title insurance business can face a fine of up to $10,000, up to one year of imprisonment, or both.6Office of the Law Revision Counsel. 12 U.S. Code 2607 – Prohibition Against Kickbacks and Unearned Fees If you suspect your agent, lender, or attorney is steering you toward a particular title company in exchange for a referral fee, you can file a complaint with the Consumer Financial Protection Bureau.
Confirming the Split Before You Sign
Federal rules require your lender to send you a Closing Disclosure at least three business days before closing.7Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs That document itemizes every closing cost, including each title insurance premium and which party is paying it. Use the three-day window to line the disclosure up against your contract and raise any discrepancy before you sit down to sign.
Premiums depend mostly on the purchase price for the owner’s policy and the loan amount for the lender’s policy. On a $300,000 home, an owner’s policy generally runs between roughly $1,500 and $3,000 depending on the state, with rates near 0.5 percent of the purchase price producing the lower figure and rates closer to 1 percent producing the higher one. The lender’s policy is usually cheaper than the owner’s. Many states regulate these rates through their insurance departments, so the premium itself may not be negotiable even though who writes the check is.
Your Right to Choose the Title Company
When a federally related mortgage is involved, a seller cannot require the buyer to buy title insurance from a specific company as a condition of the sale. A seller who violates this rule is liable to the buyer for three times the amount charged for the title insurance.8Office of the Law Revision Counsel. 12 U.S. Code 2608 – Title Companies; Liability of Seller
The working principle is that whoever pays for a policy chooses the insurer. If the seller is paying for the owner’s policy, the seller can pick the title company for that policy. The seller cannot force the buyer to use a particular company for the buyer’s own policy or for the lender’s policy the buyer is paying for. If the contract tries to lock you into a specific title company for a policy you are paying for, push back before you sign.