What are closing costs in Arizona?

Picture of an Arizona sunset over a desert landscape in article covering what are closing costs in AZ

Congratulations! You’ve found your dream home in Arizona’s vibrant landscape. But before popping the champagne, there’s one more financial hurdle to jump: closing costs. These fees, often an afterthought for non-experienced homebuyers, can add a significant chunk to your homebuying expenses. Closing costs are expenses incurred when purchasing a home that are in addition to your required down payment.

Understanding closing costs: what are they, and why are they needed?

Closing costs are fees associated with a home purchase. When it comes to purchasing a home there is a lot of work being done behind the scenes. The lender, title & escrow company, home inspector, and insurance company are all working hand in hand to get your home purchase across the finish line. Each step in the purchase process comes with a cost.

Closing costs vary depending on your specific situation, but the types of fees are the same regardless of the transaction. Here is a high level overview of what closing costs are in AZ:

Home Inspection

While not technically required when purchasing a home, a home inspection is an important piece to the closing cost puzzle. It provides peace of mind by identifying any potential issues with the property before closing, allowing you to negotiate repairs or adjustments with the seller. Home inspections range from $350 – $1,000 depending on the size of the home.

Lender Fees

  • Processing and Underwriting: these costs compensate the lender for the ‘leg work’ associated with your mortgage transaction. Processing and underwriting are the 2 main milestones of the mortgage process. Processing is getting the necessary paperwork and verifications done to complete your loan, while underwriting is ensuring your loan meets the necessary program and government requirements. Processing and underwriting fees vary from lender to lender but generally range from $1,000 – $2,000.
  • Discount points: Discount points, if chosen, are paid at closing to lower your interest rate. Discount points are not necessarily a requirement but some buyers opt to utilize them. Discount points are a % of your loan amount and vary based on the rate chosen. A good rule of thumb is 1% of the loan amount will buy your interest rate down about 0.25%.

Appraisal Fee

Before finalizing your loan, lenders require an appraisal to ensure you aren’t overpaying for the home. A licensed appraiser will inspect the property and analyze it’s value based on several factors including recent comparable sales (aka comps). This fee covers the cost of this service. Appraisals generally range from $500 – $800 depending on the loan type and size of the home.

Escrow Fees

Escrow services are essential for facilitating a smooth transaction. The escrow company acts as a neutral third party, holding funds and documents until all conditions of the sale are met. Their fee covers the administrative tasks involved in managing this process. Escrow fees vary depending on the complexity and size of the transaction and can range from $1,000 – $3,000, often split between buyer and seller.

Title Fees

Title insurance protects against any defects in the property title that may arise after purchase. The title company, often the same as the escrow company, completes a title search to ensure there are no claims to the home aside from the seller. Title insurance is purchased to protect the buyer and lender against any ownership claims on the property that could arise after closing. Title insurance ranges from $1,000 – $4,000 depending on the property and loan size.

County Recording Fee

Recording is the process the county completes to legally document the transfer of property ownership. This fee varies depending on the county but is essential for ensuring your ownership rights are properly recorded. Recording costs range from $50 – $150.

Pre-Paids

  • Per diem interest: Interest accrues daily on your mortgage loan, starting from the day of closing until the end of the month. The per diem interest covers this period and is typically due at closing. This cost varies depending on date of closing, interest rate, and loan size.
  • Homeowners Insurance: regardless of if you include insurance with your mortgage payment, lenders require that you are insured for an entire year beginning the day of closing. You can expect to pay your entire 12 month insurance policy at closing.
  • Property Taxes and Insurance Impounds: To establish an escrow account that ensures timely payment of property taxes and homeowner’s insurance, you’ll need to pre-pay a portion of these expenses at closing. The amount will depend on the current tax bill and your insurance policy. These funds are used as a cushion in case the tax or insurance bills come out more than expected. This is only required when including taxes and insurance with your mortgage payment.

HOA Fees & Prepaid Dues

If purchasing a property within a homeowners association (HOA), the HOA generally charges certain fees when transferring ownership of a property. These can include transfer fees, capital improvement fees, and pre-paid dues. These cover the administrative costs associated with transferring HOA membership and funding future community projects or repairs. These fees can vary drastically from property to property, so it is imperative you inquire about those costs before making any final decisions.

The Takeaway:

Closing costs are an essential part of the homebuying process. While these costs will vary based on your specific situation, you can expect to pay between 1% – 4% of the purchase price. By familiarizing yourself with the various fees involved and planning accordingly, you can navigate closing with confidence. There are also programs available that offer assistance to cover closing costs for qualified buyers. The seller can also pay for them on your behalf if negotiated successfully.

Remember, don’t hesitate to ask your lender or realtor for clarification on any specific cost. With careful budgeting and informed decision-making, you can turn the key to your Arizona dream home without breaking the bank!

About the Author

headshot of Mark Tomaszewski, founder of the MT Group.

A graduate of the University of Arizona, founder of MT Group Mark Tomaszewski, began his career in the mortgage industry. His passion for helping others achieve their goals is the driving factor behind creating MT Group.

Over the last decade Mark has helped hundreds of families achieve The American Dream of Homeownership all over the country. Customer service is always the number one priority, and Mark prides himself on always putting the needs of his clients’ before his own. Reach out today for your personalized mortgage plan.

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