Does the VA require title insurance? Some borrowers may discuss their VA loan options with a lender that does require title insurance, but is it a VA-mandated or lender required feature of VA home loans?
Title insurance is not mandatory under the VA loan program. But VA loan rules do permit lenders to require such insurance.
"VA does not require a lender making a VA loan or the veteran-borrower to obtain title insurance. The lender may apply its own title insurance requirements to VA loan transactions. VA requires only that title to the property meet the standards described in `Estate of the Veteran in the Property.'"
Where does the justification for this rule come from? VA loan rules say, "VA regulations at 38 CFR 36.4354 provide the parameters for the required estate of a veteran in real property securing a VA-guaranteed loan. The lender is responsible for ensuring the loan conforms to these parameters. Generally, title to the estate shall be that which is acceptable to informed buyers, title companies, and attorneys in the community in which the property is situated."
So in essence, any required title insurance is not included "against the wishes of the VA." Some lenders require title insurance, some may not. Even if you do have the option to waive title insurance, this type of waiver is the exception, not the rule.
In addition to title insurance, you should be aware of related issues that govern titles. The VA also establishes that a lender is free to require title insurance and has guidelines that state lenders cannot restrict the VA borrower from selling the property purchased with a VA guaranteed mortgage. This is a very important feature of the VA loan rule book to be aware of. It states:
"Restrictions on the purchase or resale of the property are unacceptable to VA, with certain exceptions. The lender must:
- Ensure any restrictions fall within the exceptions provided by VA regulations at 38 CFR 36.4308 and 38 CFR 36.4354,
- Consult VA where doubt exists,
- Obtain VA approval where appropriate, and
- Fully inform the veteran and obtain his or her consent to the restrictions in writing at the time of loan application."
Borrowers may, with the participation of the lender, have a VA loan assumed, but may also sell the property at any time without restriction as described above.