If you are navigating the VA loan process, you may have questions about certain requirements and charges associated with VA loans, such as a title insurance fee. Understanding what these fees are and what title insurance is can help guide your decisions during the loan process.
VA title insurance protects you, as the borrower, and your lender from any title-related costs or issues that may arise after closing.
Title insurance may also be referred to as a title fee, and the cost of this insurance is typically itemized on the closing costs for your VA loan. You can expect the cost of VA title insurance to be about 1% of your total loan.
Although you will not be required to purchase owner’s title insurance to close on a VA loan, having no title insurance that protects your financial interests in the property can put you at significant risk.
Almost all lenders will require a lender’s title insurance policy, which may cover some of the lender’s costs, but there are no guarantees that you won’t incur costs of your own. Even worse, if there is no title insurance for the owner or the lender, any and all costs associated with title issues after closing would fall solely on you as the homeowner.
Without title insurance on your VA loan, you could be at risk for costs associated with the following:
Once you have a VA title insurance policy in place, you or your lender are covered for costs arising from title issues that were not uncovered during the original title search. Before your loan can close, your lender will conduct a thorough search on the title of your property to verify that:
Even if an issue is found during the search, your lender will typically work with you and the seller to resolve it before closing. VA title insurance comes into play when an issue was not uncovered during the title search but comes to light after closing.
Title issues, also known as title defects, raised after the loan closes can often require a legal process to resolve. Some common title defects covered by a title insurance policy include:
There are two types of VA title insurance: owner’s and lender’s insurance. It’s important to know the difference in policy types when you are purchasing a home. Even if you are not considering buying owner’s title insurance, your lender may choose to have their own policy in place. Even the most thorough lenders occasionally miss things in a title search, so having protection in place can save thousands of out-of-pocket dollars in court costs that could arise from a title defect.
The owner’s title insurance protects your interests in the loan process. Although the lender is primarily responsible for conducting a thorough title search and it is in their best interests to do so, you could still incur financial hardship if a title defect arises after closing.
If the ownership of the property is called into question after the loan closes, you could temporarily be displaced from the property or incur legal fees associated with resolving the matter and moving forward with ownership of the home. To purchase an owner's title insurance policy, you pay a one-time fee at the time of closing.
Similar to the owner’s title insurance, a lender’s title policy will cover costs associated with legal fees and other expenses arising from a title defect that was not discovered until after closing.
Unlike owner’s title insurance, a lender’s title policy is paid by you, the buyer, rather than the party that benefits from the policy (the lender). If a lender wants to protect their financial interests, they may require that you purchase a lender’s title insurance policy at closing. Although the cost of this policy is ultimately your responsibility, it is possible to negotiate that the seller covers some or all of the policy costs.
In order to obtain title insurance, your lender must have completed a title search and determined that your property has a “clear title.” This means your property is free from liens (with the exception of the seller’s existing mortgage that would be paid off at closing), property disputes, unpaid taxes, or other issues that create legal issues.
Once your lender has cleared your title, you can request that the cost of your owner’s title insurance, lender’s title insurance, or both are added to your closing costs on the VA loan. Once paid for at closing, the title insurance policies become effective immediately and cover any title-related issues for the life of the VA loan.