Many financially savvy individuals who have the means to do so will buy commercial property using an all cash offer. This way, they can purchase a property without needing to make a mortgage payment (and pay interest on a loan) every month. While buying a property outright isn’t a possibility for many individuals, for those that have this financial capability, it can save them hundreds of thousands of dollars or more because they aren’t paying back a loan with interest.
Regardless of how you’re securing a commercial property, there’s a good chance that you’ll be told that a title insurance policy is a wise investment. A title insurance policy provides financial protection in the event that someone makes a claim on your title or an undiscovered issue with the property surfaces. But does the cost to secure this policy change based on whether or not you have a mortgage associated with a property? We answer that question in today’s blog.
Is Title Insurance Cheaper If I Don’t Take Out A Loan For The Property?
Is title insurance cheaper if you pay all cash and don’t need to take out a loan to finance the purchase? Yes and no. Let’s explain why both of those answers are true:
- No - Whether or not you have a loan associated with your property should not have any bearing on the cost to secure an owner’s title insurance policy. This policy price is based on a number of different factors, like the value of the property, state policy rates and any endorsements you add to a policy, but the presence of a mortgage is not one of them. You can expect to pay the same for your owner’s title insurance policy regardless of whether or not you secure a loan to assist with the purchase of commercial property.
- Yes - However, there is a cost savings associated with title insurance when you purchase a property outright without bringing in a financial institution to finance the purchase. When you apply for a loan as part of the commercial purchasing process, one of the likely requirements from the lender will be that the borrower secures a lender’s title insurance policy. This title insurance policy provides the exact same type of protection as an owner’s title insurance policy, but this will protect the financial interests of the entity supplying the loan. The financial institution needs to know that their interests are protected in the event that a title defect is discovered, so they will require that you purchase a lender’s title insurance policy prior to authorizing your loan. However, if you don’t have a loan because you’re buying the property outright, you don’t need to pay to secure this type of coverage, which saves you some money.
So while an outright cash purchase can save you money by avoiding interest charges associated with a loan, it’s not going to change what you’ll pay to secure your owner’s title insurance policy. There will be some cost savings because you won’t also need to buy a lender’s title insurance policy, but your own policy will not be impacted.
For more information about how title insurance policies are created and priced, or for assistance securing title insurance for your commercial property, reach out to the team at Commercial Partners today at (612) 337-2470.