Step-By-Step Guide to Lender’s Title Insurance or Loan Policy

Get a better overview of the lender’s title insurance process. Anytime a mortgage loan is involved in a property transaction, there is a lender’s title insurance or loan policy.

A loan policy protects lenders from title issues, such as fraud, defective titles, title claims, or anything that could cause losses in the value of the initial investment. The homeowner’s policy is often absorbed by the seller or added to the total price of the home. By contrast, lender’s title insurance or the loan policy is commonly bought by the homebuyer as part of the loan. Lender’s title insurance or the loan policy depreciates over time with the loan and expires when it is finally paid off.

Here’s how the loan policy process works for lenders:

Lender Loan Policy Process

Complete Application

First your buyer must complete the loan application process by filling out a form. Anytime a buyer initiates the loan application process, this starts a ticking time clock for lenders. With the new CFPB regulations, you must get the Loan Estimate to your customer within 3 days after the submission of the initial loan application.

Awarding Pre-Approval

A preapproval letter informs your customer of how much they can afford when it comes to the cost of the home. Getting your customers pre-approved saves you from wasting time only to have a potential buyer’s application declined. The trick is letting them know that their credit status should not change throughout the closing process until the final mortgage approval has been made.

Underwriter Verification

After the loan application has been submitted, the lender verifies the information and begins the underwriting process. Verification can mean calling the customer’s place of work to confirm employment and financial status.

Appraisal

Before the home is ready for sale, it must be appraised. This involves having a home inspector conduct a thorough investigation of the property and notating any issues that could subtract from the appraised value. If there are big problems, oftentimes repairs will be ordered and must be completed before closing. This just confirms the market value of the home to come up with a fair price.

Approval

After a potential homebuyer’s application and financial information have been submitted, then it’s time to approve the new home buyer. As long as none of the essentials have changed — such as the customer’s debt, credit, or income — the loan should be approved.

Pre-Closing

After the loan applicant is approved, the title agent and lender must then gather any documents needed to write your homebuyer’s and lender’s title insurance policies that protect against claims of ownership to the property.

Title Search

The title search is a crucial part of the validity of the real estate transaction. Surveying the property and checking for encumbrances, disputes, or restrictions that could have an effect on the ownership or a clear title helps build a lender’s title policy free from errors.

Survey & Flood Certification

Before a lender feels comfortable financing a property investment, they conduct a survey that investigates the property boundaries and other encroachments that could affect the title such as liens or disputes. A flood certification must also be completed to detect whether or not the home is located in a “flood zone”.

Closing Day

On closing day, the lender and the customer sign important loan documents and funds are transferred to complete the sale. After closing day, the new homeowner gets the keys and is permitted to move into the property.

Mortgage lenders should take advantage of a title insurance company with a seamless closing process. Partner with Bay National Title Company for fast, accurate delivery and a better closing experience.

SOURCES:

5 Key Steps in the Mortgage Underwriting Process

Steps in the Lending Process