In any Arizona real estate transaction, various legal fees are involved to reduce the risk to both sellers and buyers as the property changes hands. One such cost is title insurance, which guarantees the buyer is the new legal property owner.
Today, we’ll explain exactly what title insurance is and how it works. If you have further questions, contact a mortgage loan officer at District Lending to learn more.
What Is Title Insurance?
Title insurance protects all parties – buyers, sellers, and lenders – from risks arising during the title transfer process. Both types are a one-time fee included in closing costs.
What Isn’t Covered by Title Insurance
Title insurance only covers issues that may arise concerning the title. It won’t cover defects found in the home inspection, such as infestations or structural damage, and it won’t protect you from fire damage or natural disasters.
The Two Types of Title Insurance Policies
There are two types of title insurance, both of which play an essential role in protecting all parties from ownership-related issues. The owner’s policy is for the homeowner, while the lender’s policy protects the lender that is providing the home loan.
Types of Title Policies: Owner’s Title Insurance Policy
This form of title insurance protects buyers from various circumstances regarding legal property ownership. Here are some of the issues which title insurance can protect against:
- Forged documents
- Clerical errors in public records
- Issues due to mistaken identity
- Liens on the property at the time of the sale
- Conflicting wills and trusts related to the property
In short, title insurance ensures that you are the legal owner of the property regardless of extenuating circumstances, such as a misspelled name in public records or confusion regarding claims on the house.
Owner’s insurance makes up most of the title insurance cost, while the lender’s title insurance is usually a relatively negligible cost. The total cost is between 0.5% and 1% of the home’s purchase price.
Your owner’s title insurance policy is good for the entire time you or your heirs own the home; when you choose to sell, you must open a new owner’s policy that guarantees you the right to sell the property.
Types of Title Policies: Lender’s Title Insurance Policy
The lender’s policy, which the borrower purchases, protects the lender if any issue with the title arises in the future. You only need this if you are paying for a property with a mortgage; in Arizona, it is automatically included in closing costs for homes using lenders, and it cannot be removed. The loan policy premium is usually up to the total mortgage cost and will expire once you’ve paid off the house.
Is Title Insurance Required in Arizona?
Title insurance itself is not required, but you do need to ensure the legitimacy of the purchase in some way. Regarding owner’s title insurance, you do have one alternative if the seller can’t pay the fee: the warranty of title.
Arizona General Warranty Deed
Also known as the Warranty of Title, this is a legal document where the seller affirms that they can transfer the home title to the new owners. It promises that no one else has a legitimate claim to the home, and the new owners can sue if an ownership issue arises.
While it covers less than title insurance, this document does protect buyers from certain problems, such as:
- Inheritance issues
- Boundary line disputes
- Survey inconsistencies
- Undisclosed mortgages
- Outstanding property taxes
- Unpaid federal income taxes
How Much Does Title Insurance Cost In Arizona?
Owner’s title insurance costs vary depending on which title insurance company you choose, but the total cost typically lies within about 0.5% to 1% of the overall home loan amount. The average cost is about $1,450 in Arizona.
The lender’s title insurance is a fixed fee of $315, no matter how expensive the home is.
How Is Title Insurance Calculated?
Your title insurance premium is calculated, including all the title fees related to closing costs, which are paid to lawyers, counties, and the title company themselves and typically calculated based on the purchase price of the property.
Title search: A title search confirms that the seller is the legitimate homeowner; this fee varies between $75 and $200.
Title settlement: This is for the administrative costs of the title company, such as deed preparation and notaries.
Attorney: Arizona doesn’t require a lawyer to oversee a real estate transaction, but working with a lawyer can ensure that all legal documents are completed correctly. Typically, real estate attorneys have an hourly fee of around $300.
Abstract and Recording: This is a legal recording of the property’s title history, including all transfers of ownership. These title fees can go up to $400, but it varies. The transaction also needs to be recorded in the Arizona public record, including mortgages and liens. The county charges this, and it’s usually around $30. The buyer and seller split the cost of this.
Who Pays for Title Insurance in Arizona?
As outlined in the Arizona Residential Purchase Contract, the seller pays for the Homeowner’s Title Insurance policy, but the buyer pays for the Lender’s Title Insurance Policy.
In Arizona, the owner’s title insurance policy can only be issued from title companies that are members of the American Land Title Association, which is the trade association that represents the title insurance industry. District Lending is happy to help direct you to great title companies with excellent prices on all types of title insurance.
If the buyer is unsatisfied with the coverage provided by the owner’s policy, they can purchase additional coverage at their own expense. It’s not uncommon for the buyer to request that the seller pay for both the owner’s title policy and the lender’s title policy.
How Can You Save Money on Title Insurance?
If you purchase both title policies at the same time, the title company may give you a discount; they may also reduce costs if you renew the owner’s title policy that the seller originally purchased. The seller will need to provide you with policy documents for this.
There are also 2 types of title insurance: standard and enhanced. The enhanced policy is about 20% more expensive and protects against post-closing issues. If you’re looking to save a bit of money, go for the standard version instead.
Title Insurance Arizona: We’ll Guide You Through The Home-Buying Process
As the premier mortgage broker in AZ, we have extensive experience in all aspects of purchasing a house. We’ll guide you through your entire home-buying journey, including title fees, closing costs, and everything in between.