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A Closer Look at Title Insurance for VA Loans

Veteran and military homebuyers will need to have a "clear title" before purchasing a home. This means there aren't any liens, legal defects or property disputes on the house you are trying to buy. This isn't an issue most of the time, but it's important to understand how it can halt your home buying journey.

 

First-time homebuyers often encounter new terms and concepts during the purchasing process. Title insurance can be one of the most confusing.

Veterans and military members might hear they need a "clear title" on the home they hope to buy. But what exactly does that mean, and why is it important?

Having Clear Title

Having a "clear title" means there aren't any liens, property disputes or other legal defects related to the property you're hoping to buy. Issues from the home's past could wind up coming back to hurt both the lender and the new homeowner.

A contractor who never got paid could have slapped a lien on the home, or a long-lost heir could show up after the purchase and claim they're the rightful owners of the home.

These and dozens of other scenarios are all possible, and the claims don't just disappear when you purchase the property. You would ultimately inherit them and all the potential legal expenses that come with them.

That's where title searches and title insurance come into play.

Once you're under contract on a home, a title company will search public records for liens, easements, legal claims and other issues that could impact the property. Most of the time, it's smooth sailing. Either there are no problems or any issues that arise are cleared up before closing.

But lenders will only move forward on a property if there's a clear title.

Lender’s Title Insurance

There are two different types of title insurance:

  • Policies for lenders (lender's title)
  • Policies for homebuyers (owner's title)

Lenders will require the purchase of lender's title insurance. This policy protects only the lender's financial interest in the property. Buyers are responsible for this cost, although you may have the seller cover it as part of your overall closing costs negotiation.

Lender's title insurance does not protect you or safeguard your financial interests when it comes to title-related issues. So what does that mean for you?

Owner’s Title Insurance

To protect their financial interests, buyers can choose to pay a one-time fee at closing for the owner's title insurance. This policy protects you and your heirs and requires the title insurer to pay costs and claims associated with a qualified title issue.

While it's optional, purchasing owner's title insurance helps safeguard your financial interests. Without it, homeowners would have to pay legal fees from their own pocket to fight title issues in court. You could even lose the property and any equity that goes along with it.

If you purchase owner's title insurance, the title company is responsible for covering those costs and making you whole if need be.

Why should I have owner’s title insurance?

While you are required to buy lender’s title insurance anytime you finance a home purchase, owner’s title insurance isn’t mandatory. However, many homebuyers choose to purchase owner’s title insurance for the protections it has to offer.

Purchasing this policy offers added benefits to buyers, including:

  • Avoiding uncertainty
  • Dodging disputes
  • Cost efficiency

Avoiding Uncertainty

Home purchases often represent a significant portion of a buyer’s net worth, so avoiding uncertainty is a key advantage of having owner’s title insurance. These policies offer buyers peace of mind when going through the homebuying process, which can limit the stress of making these major purchase decisions.

Title insurance offers protection before you close on the property and afterward, if later issues arise.

We do a very detailed search to understand whether, for instance, there’s a lien on the property or a dispute over ownership. If we discover any of those issues, we let you know and you or your attorney have a chance to work with the seller and resolve these issues.

Daniel Price, President and CEO, OneTitle National Guaranty Company

Dodging Disputes

“If it turns out that someone actually has a legitimate claim against the house–including either ownership or liens–the homeowner would have to pay those damages or [they] could lose their house,” Price says. “There may be opportunities for the homeowner to sue someone else, for example, the person who sold [them] the house, for damages, but again, they will be on their own in terms of hiring attorneys and going to court.”

In instances like those Price describes, homeowners would greatly benefit from the owner’s title insurance protection. If a dispute surfaces later on after closing, the title insurance company might pay to settle or litigate the dispute on your behalf. Without owner's title insurance, you'd need to hire an attorney on your own dime.

Cost Efficiency

When it comes to purchasing title insurance, cost is a huge consideration for many homebuyers.

Prices for title insurance can vary, but homebuyers can shop around for the best policy and negotiate with home sellers about paying these costs. If you’re purchasing your lender’s policy from the same company, the extra cost for owner’s title insurance may be incremental. In some states, the seller will typically pay the one-time premium for owner’s title insurance, so there may even be no added expense depending on the buyer’s location.

Ultimately, while owner's title insurance is not mandatory, it is a valuable investment that ensures buyers have the necessary safeguards in place to protect their most significant assets—their homes.

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