Can you negotiate with the seller that owner's title insurance is paid by them? Also, are you certain that it is not owner's extended coverage which is optional?
In the broad scheme, you will not be the first occupant of the property, unless the seller received title directly from the government. There are innumerable circumstances where your title could be inferior to someone else, or where what the builder thinks it is selling you falls short of what you actually receive (in regards to title, not quality of the house). The chances something will come up are remote, however.
If your lender lets you skip owner's title insurance, it comes down to a judgment call. The worst that could happen is that you lose title to the property, and all the money that you put down. Personally, I would not go without it. It's a small expense compared to the whole transaction.
