What Are Closing Costs in Arizona?

Closing costs represent the various fees and expenses incurred by both buyers and sellers during a real estate transaction. These costs are a part of the total expense of buying or selling a home. Understanding these obligations is important for anyone entering the housing market. This article explains closing costs in Arizona real estate transactions.

Arizona Closing Cost Components

Closing costs include various fees. Lender-related fees are a component for buyers obtaining financing. These include an origination fee for processing the loan, and an underwriting fee for loan evaluation. Other fees include appraisal fees for property valuation, credit report fees for credit assessment, and flood certification fees for properties in flood zones.

Title and escrow fees are also part of closing costs. Title insurance protects both the buyer and the lender from future claims against the property’s title. An owner’s policy protects the buyer, and a lender’s policy protects the lender. Escrow fees compensate the escrow agent for managing funds and documents until sale conditions are met. Recording fees are paid to the county to register the new deed and mortgage.

Government fees are also included. County recording fees are paid to the local government to record the sale and mortgage. While some states impose property transfer taxes, Arizona does not have a state-level real estate transfer tax.

Prepaid items are another category of expenses paid in advance. These include prorated property taxes, divided between buyer and seller based on the closing date. Homeowner’s insurance premiums for the first year are collected at closing. If the property is part of a homeowners association, initial HOA dues are collected upfront.

Other costs can arise. Homeowners Association transfer fees may be charged by the HOA for ownership transfer. Buyers may incur survey fees or opt for a home inspection. Home warranty plan costs, if negotiated as part of the sale, are included.

Who Pays Closing Costs in Arizona

The allocation of closing costs between buyers and sellers in Arizona is based on local practices, though negotiable. Buyers are responsible for most lender-related fees, such as loan origination, underwriting, appraisal, and credit report fees. They pay for the lender’s title insurance policy, protecting the lender’s interest. A portion of escrow fees and all prepaid items like property taxes, homeowner’s insurance premiums, and initial HOA dues are borne by the buyer.

Sellers cover the real estate commissions for both the buyer’s and seller’s agents, which are a major expense. Sellers customarily pay for the owner’s title insurance policy, protecting the buyer’s investment. Sellers pay a portion of the escrow fees and any Homeowners Association transfer fees. If a home warranty plan is negotiated as part of the sale, the seller pays for it.

Prorated items, such as property taxes and Homeowners Association dues, are split between the buyer and seller based on the closing date. For example, if the seller has paid property taxes for the entire year but closes halfway through, the buyer will reimburse them for the portion of the year they will own the property. While customary allocations exist, market conditions and the purchase agreement influence who pays which costs. A buyer might negotiate seller concessions to cover some closing costs, especially in a buyer’s market.

Reviewing Your Closing Documents

Before the closing day, two documents are important for understanding financial obligations: the Loan Estimate (LE) and the Closing Disclosure (CD). The Loan Estimate is provided by your lender within three business days of applying for a loan. It offers a good faith estimate of loan terms, projected payments, and estimated closing costs.

The Closing Disclosure is a document provided by your lender at least three business days before closing, allowing time to review final loan terms and costs. It itemizes all transaction fees, including lender charges, title fees, and prepaid expenses. The Closing Disclosure states your “Cash to Close” amount, the total funds needed at closing.

Comparing the Closing Disclosure to your Loan Estimate is important. Scrutinize loan terms to ensure they match what you agreed upon, including interest rate and loan amount. Pay attention to the itemized closing costs, checking for unexpected fees or increases from the Loan Estimate. If discrepancies or questions arise, contact your lender or escrow agent for clarification before closing.

The Closing Day Experience

Closing day finalizes the real estate transaction. It typically takes place at the title company or escrow agent’s office. Parties or their representatives gather to finalize paperwork. The main activity involves reviewing and signing legal documents.

Among the documents signed are the Deed, transferring property ownership, and the Promissory Note, the buyer’s promise to repay the loan. If obtaining a mortgage, the Deed of Trust or Mortgage document is signed, granting the lender a lien. Affidavits and disclosures related to the property and transaction are also signed.

Following the signing, the transaction moves into the funding phase. The buyer wires their remaining cash to close, as indicated on the Closing Disclosure, to the escrow agent. Once funds are collected, including loan proceeds, the escrow agent disburses payments to all relevant parties, such as the seller, real estate agents, and service providers.

The final step involves recording the deed and other documents with the county recorder’s office. This recording legally transfers ownership and makes the transaction public record. After recording is confirmed and funds are disbursed, keys are transferred to the new owner.