SAFE MLO Closing & Funding question: pay for an owner's title policy

SAFE MLOClosing & Funding

A buyer asks why she should pay for an owner's title policy when the lender already requires a lender's policy. What is the key difference?

A The owner's policy is required by federal law on every purchase transaction
B They protect the same party, so one is enough
C Each policy protects a different party
D The lender's policy also covers her equity

Show the answer and explanation

Answer: C. Each policy protects a different party

A lender's title policy protects the lender's lien up to the loan amount; an owner's policy protects the buyer's ownership interest up to the purchase price. The owner's policy is usually optional and is paid once at closing. Under TRID, an optional owner's policy not required by the creditor has no tolerance limit (12 CFR 1026.19(e)(3)(iii)(E)). Source: Fannie Mae Selling Guide, Chapter B7-2 (Title Insurance); 12 CFR 1026.19(e)(3)(iii) (as at 11 Oct 2026).

Common mistake

Thinking the lender's policy also protects the buyer.

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A loan closes and funds on June 18. Why does the borrower pay interest at closing?What does a title commitment (binder) show before closing?A borrower takes a 12-month loan to finance construction of a house; a separate permanent loan from another lender will pay it off. Under Regulation X, how is the construction loan treated?

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Original study material mapped to the public NMLS Content Outline; not a real test question.Not affiliated with or endorsed by NMLS, CSBS or SRR. Verify figures and rules against current guidance before relying on them.