On average, Americans should expect to pay between two and five percent of their mortgage, or approximately $6,087, in closing costs. According to a 2021 report by ClosingCorp, this amount includes taxes for the acquisition of a single-family property.
However, this amount will vary based on the state you reside in, the price of the home, and the homebuyer assistance programs available to help you pay for it.
Districts of Columbia, New York, Pennsylvania, Washington, and New Jersey had the highest average closing costs in 2020, while Missouri, Indiana, Arizona, Arkansas, and Iowa had the lowest.
Arizona ranks fourth in the nation for having the lowest closing costs. Homebuyers can expect to pay $1,662 for a $271,904 new home, which is the state’s national average. This represents only 0.61 percent of the purchase price of your residence.
Private mortgage insurance is not included in these estimates because they are based on a 20% down payment.
As of 2008, Arizona is one of approximately a dozen states that do not impose real estate transfer taxes, so you do not have to fret about this additional expense.
In Arizona, buyers and vendors typically share escrow costs, and buyers can even negotiate who will pay for which components. Buyers in Arizona are customarily responsible for all lender fees. Included among these are your loan application fee, underwriting fee, mortgage insurance, and pre-paid interest.
Your closing costs are due when you execute your mortgage documents on “closing day.” This is typically when your down payment is also due, creating a day of lavish spending.
What’s Typically Included in Arizona Closing Costs?
Homebuyers may ponder what is included in a bill for up to $1,600 in closing costs. Think of it this way: you’re paying for two distinct sets of expenses: property-related costs, such as your home inspection and property taxes, and mortgage-related costs, such as loan application fees and private mortgage insurance.
Here’s a closer look at how your Arizona closing costs bill will be broken down:
Loan origination fees
Your lender will charge you a fee to initiate and process your loan application, as well as complete any necessary underwriting. It’s a hefty sum – in Arizona, it’s typically between one and two percent of your loan amount.
Credit report fee
Before extending a loan, your lender will examine your credit score during the underwriting phase. Count on the lender to charge you this $25 fee.
Appraisal and home inspection fees
Once you have been pre-approved for a mortgage, you can begin your home search.
Prior to a lender disbursing funds, you’ll need to pass two additional inspections: an appraisal and a home inspection.
In this case, your lender will dispatch a third-party appraiser to your prospective new residence to ensure that it is in good condition and is priced appropriately. So, if you default on your mortgage, your lender will know they can sell the property to cover the deficiency. Additionally, you’ll need a home inspection for two reasons: to ensure that everything is in excellent working order and to identify any repairs you may need to request the seller to make prior to closing the deal.
These two stages are crucial to the home-buying process, and the buyer is responsible for paying for these professional evaluations. Each of these services will cost between $300 and $600, depending on your Arizona location and the size of your property.
In Arizona, you will pay either a title company or a title agent to handle your closing costs. They serve as an impartial third party between you, the buyer, and the vendor or builder.
Count on your title company to assist you throughout the entirety of the closing procedure, from assisting you with the purchase of all necessary insurance policies to meeting with you and the vendor on the day of closing. Additionally, title companies retain your funds in a separate escrow account. They will not release these funds to the appropriate parties until your home purchase has closed.
The cost of escrow fees will be proportional to the price of the residence. The Arizona Department of Insurance and Financial Institutions reports that escrow fees range between $1,150 and $1,250 for residences priced between $300,000 and $500,000, while the rate for homes valued at less than $100,000 is $850. For home sales up to $1 million, the title company will charge $1,750.
Real Estate Transfer Tax
While purchasers in 37 states encounter “real estate transfer taxes” prior to closing, Arizona residents are exempt from this fee. Local and state taxes are paid at the time of the seller’s conveyance of the property to the buyer. They typically cost $0.50 per $500 of the purchase price of your property. Some states even charge a fee for recording this property transfer.
This is not the case in Arizona, so you can exhale a murmur of relief. Arizona Proposition 100, also known as the “Protect Our Homes Act,” was enacted in 2009 and prohibits taxes or fees on the sale or transfer of real estate.
However, property taxes and real estate transfer taxes should not be confused. You are still responsible for those!
Arizona is home to both catastrophic floods and regional floods with durations of weeks to months. Both can cause significant damage to homes, particularly during the monsoon season in the state.
Flood certification is an additional stage for Arizona homebuyers; it provides an official document indicating the property’s flood zone status and is submitted to insurers. This fee ranges between $10 and $50.
Contracts, deeds, and other legal documents may need to be drafted, reviewed, or certified by an attorney during the home-buying and closing process. In Arizona, you can anticipate paying your attorney about $250.
Private mortgage insurance
If you do not make a 20% down payment, your lender will require you to purchase private mortgage insurance. PMI enables applicants to qualify for a conventional loan with as little as a five to nineteen-point down payment. It is typically arranged by the lender and issued by private insurance companies in Arizona.
To clarify, although you pay for the insurance, the coverage is for your lender. Due to your lack of a 20% down payment, PMI protects your lender against loan default.
Depending on the size of your down payment and credit score, PMI ranges from 0.25 percent to 2.25 percent of the outstanding loan balance.
Title search and title insurance
Whether you are purchasing a newly constructed home or an existing residence, you must affirm that you will own the property free and clear. In this case, you will need to pay the title company to conduct a title search to ensure the property is free of liens and pending litigation. Expect to pay your title company approximately $750 for these vital services. Depending on the complexity of the property’s historical records, it may cost even more.
After the title inquiry, you must purchase title insurance as a precaution. If the title search misses something, title insurance functions as a second layer of protection so that you are not liable for any unforeseen issues. In Arizona, lenders frequently require this insurance, meaning you cannot obtain a mortgage loan unless you purchase it.
Your lender will require you to obtain homeowner’s insurance and pay for the first six to twelve months of coverage in full at closing, regardless of where you live in the United States, be it Arizona or elsewhere. It is essential to have homeowner’s insurance in place prior to closing because it will cover any physical damage to your property caused by fire, wind, vandalism, or theft.
This is a “prepaid” expense, which means that it must be paid in cash at closing and cannot be financed.
How Can I Lower My Closing Costs in Arizona?
Aerial view of a densely populated region with numerous residences and retail centers.
Homebuyers in Arizona can take measures to make the process more affordable, despite the fact that purchasing a home is likely to be the largest purchase of a lifetime. Here are some of the most important strategies you can implement to reduce your closing costs:
Closing cost assistance
There are numerous state and local homeownership programs available to Arizona homebuyers. They can provide financial assistance in the form of down payment assistance, assistance with closing costs, and even mortgage credit certificates, which are substantial tax benefits that last for the duration of your mortgage. While some states limit this assistance to first-time homebuyers, the Copper State does not.
Home Plus Homebuyer Down Payment Assistance Program helps income- and credit-eligible homebuyers with a 30-year fixed-rate mortgage, up to five percent down payment assistance, and closing cost assistance, if required. Additionally, the Pathway to Purchase program offers down payment and closing cost assistance of up to 10% of the home’s purchase price. This program is applicable only in the following postal codes: Bullhead City, Casa Grande, Glendale, Green Valley, Kingman, Phoenix, Rio Rico, and Tucson.
Research local homebuyer assistance programs at all times. Homebuyers in Maricopa County, for instance, can apply for up to six percent in down payment and closing cost assistance, whereas Mesa has its own Homeownership Assistance Program that focuses on covering closing costs.
One of Phoenix’s homeownership programs provides up to $15,000 in grants to low-income first-time purchasers for their down payment and closing costs.
Work with your real estate agent to attempt to negotiate some or all of your closing costs from the vendor, whether you are purchasing a newly constructed home from a developer or an existing home from a previous owner.
If you are purchasing a new home and need to pay for upgrades, you may be able to negotiate with the contractor to have them pay your closing costs. It’s a win-win situation for both parties: your builder sells another lot, and you’re able to free up funds for appliance upgrades, hardwood flooring, or crown molding.
If you are purchasing an existing property, you may be able to negotiate for the seller to pay a portion of your closing costs. You could accept a seller’s price on the condition that they pay your closing costs, for instance. In a buyer’s market, you could request that the seller pay your closing costs so that the transaction can be finalized.
A “no-closing-cost” mortgage is another method for avoiding closing costs. In this scenario, your lender agrees to pay some or all of your closing costs, but you pay a higher interest rate in exchange.
The increase in your interest rate could cost you more money in the long run, but for some homeowners, this may be the best option.
Including closing expenses in your mortgage financing
If you do not have the cash on hand to cover closing costs, you may be able to finance them into your mortgage. This means you won’t be responsible for these costs on closing day, but your monthly mortgage payments will be slightly higher to compensate. In the end, you pay interest on the closing costs that were added to your first mortgage.
Check with your lender to determine the availability of this option. Not all closing costs can be included, as some, such as homeowner’s insurance, must be paid in advance.