VA Loans, Title Rules and Related Issues
Some borrowers want to know whether the VA requires title insurance; you may be working with a lender that requires such insurance–is that the financial institution’s option or does the VA loan rulebook require it?
According to VA Pamphlet 26-7, Chapter Nine, title insurance is not mandatory under the VA loan program, but lenders are free to require it. “VA does not require a lender making a VA loan or the veteran-borrower to obtain title insurance. The lender may apply its own title insurance requirements to VA loan transactions. VA requires only that title to the property meet the standards described…in ‘Estate of the Veteran in the Property.'”
In general, VA loan rules say “VA regulations at 38 CFR 36.4354 provide the parameters for the required estate of a veteran in real property securing a VA-guaranteed loan. The lender is responsible for ensuring the loan conforms to these parameters. Generally, title to the estate shall be that which is acceptable to informed buyers, title companies, and attorneys in the community in which the property is situated.”
The lender requiring title insurance does not do so outside the parameters of the VA loan program. You may find a lender that does not have a title insurance requirement, you may also work with one that does.
There are related issues borrowers should be aware of when it comes to VA loan rules on titles. For example, the same section in Chapter Nine that establishes that a lender is free to require the insurance also says lenders cannot restrict the VA borrower from selling the property purchased with a VA guaranteed mortgage. “Restrictions on the purchase or resale of the property are unacceptable to VA, with certain exceptions. The lender must:
- Ensure any restrictions fall within the exceptions provided by VA regulations at 38 CFR 36.4308 and 38 CFR 36.4354
- Consult VA where doubt exists
- Obtain VA approval where appropriate, and
- Fully inform the veteran and obtain his or her consent to the restrictions in writing at the time of loan application.”
When in doubt about these policies, contact the VA directly at 1-800 827-1000 for assistance.
Do you have questions about VA home loans or refinance loans? Ask us in the comments section.