What Are the Typical Closing Costs in Arizona?

Overview of Closing Costs

Closing costs represent the various fees and expenses that buyers and sellers incur to finalize a real estate transaction. These charges are distinct from the property’s purchase price and encompass services, taxes, and other administrative requirements necessary for transferring ownership. Understanding these costs is fundamental for anyone involved in a property sale or purchase in Arizona.

The expenses fall into several general categories, each serving a specific purpose in the transaction. Lender-related fees cover the administrative work associated with securing a mortgage. These can include charges for processing the loan application, assessing creditworthiness, and evaluating the property’s value.

Title and escrow fees ensure the legal transfer of property and protect against ownership disputes. These charges often involve researching the property’s history to confirm clear title and managing the funds and documents involved in the closing process. Government recording fees are paid to local authorities to officially register the new ownership and any associated liens.

Prepaid items are expenses paid in advance at closing for future periods. This category includes property taxes and homeowner’s insurance premiums, which are collected to establish an escrow account for future payments. Homeowners Association (HOA) dues, if applicable, may also be prepaid at this time.

Real estate commissions are handled as a separate arrangement between the real estate brokers and the seller. These fees compensate agents for marketing the property and facilitating the sale.

Specific Closing Costs for Buyers

Buyers in Arizona face a range of closing costs, many tied to securing a mortgage loan. These expenses vary but fall between 2% and 5% of the home’s purchase price. For example, on a $400,000 home, a buyer might pay between $8,000 and $20,000 in closing costs.

Lender-related fees are a primary part of a buyer’s closing expenses. A loan origination fee, 0.5% to 1% of the loan amount, covers the lender’s administrative costs for processing the loan. An appraisal fee, $500 to $1,000, is charged for a professional property valuation to ensure its value supports the loan amount. Buyers also pay a credit report fee, around $25, to assess creditworthiness.

Title and escrow fees are also a cost for buyers. While sellers pay for owner’s title insurance in Arizona, buyers are responsible for the lender’s title insurance policy. This policy protects the lender against title defects and is a mandatory requirement for obtaining a mortgage. Escrow fees, which cover managing the closing process, are split between the buyer and seller.

Prepaid items ensure certain property expenses are covered from the closing date. Buyers prepay property taxes for a period, usually six months to a year, held in an escrow account. The first year’s homeowner’s insurance premium is also paid at closing. If the property is part of a homeowners association, buyers pay one month’s HOA dues upfront and HOA transfer fees, which range from $100 to over $1,000.

Additional costs for buyers include fees for various inspections. A home inspection, costing $300 to $600, is recommended to assess the property’s condition. Termite inspections are also common. Government recording fees, $30 to $100, are paid to the county to record the deed and mortgage documents.

Specific Closing Costs for Sellers

Sellers in Arizona incur various closing costs, which average 3.00% of the home’s sale price, excluding real estate commissions. For instance, on a $323,000 home, a seller pays about $9,700 in closing costs. These expenses are deducted from the sale proceeds at closing.

Real estate commissions are the largest expense for sellers, averaging 5.44% of the home’s sale price in Arizona. This percentage covers both the listing agent’s and the buyer’s agent’s commissions. For a $320,000 home, this means $17,408 in realtor fees.

Title and escrow fees are also a cost for sellers. In Arizona, sellers pay for the owner’s title insurance policy. This policy protects the buyer against future claims or defects in the property’s title. The cost for owner’s title insurance ranges from a few hundred dollars to $2,000, or 0.35% of the home’s sale price. Sellers also pay a portion of the escrow fees, which cover the escrow agent’s services in facilitating the transaction.

Prorated property taxes and Homeowners Association (HOA) dues are adjusted at closing to ensure each party pays their share for the period they owned the property. The seller is responsible for property taxes up to the closing date. Similarly, any HOA dues are prorated, with the seller covering their portion.

Other costs for sellers include fees for providing HOA documents to the buyer. If a seller offers a home warranty to the buyer as part of the sales agreement, this cost is borne by the seller. Sellers may agree to repair credits or concessions to the buyer based on inspection findings, reflected in the closing costs.

Understanding the Closing Disclosure

The Closing Disclosure (CD) is a standardized, five-page form summarizing all financial details of a real estate transaction. It outlines the final mortgage loan terms, projected monthly payments, and all fees and costs associated with closing for both buyer and seller. This document allows parties to review the final settlement figures.

Lenders must provide the buyer with the Closing Disclosure at least three business days before the scheduled closing date. This three-day waiting period allows the buyer to review the document and compare it against the initial Loan Estimate. For sellers, the Closing Disclosure confirms the final sale price, net proceeds, and any deductions for closing costs.

The Closing Disclosure is organized into sections. Page one summarizes loan terms, including the loan amount, interest rate, and projected monthly payments. It also provides closing costs and the estimated cash required from the buyer to close the transaction.

Subsequent pages detail closing costs, distinguishing between loan costs and other expenses. It itemizes fees paid to the lender, such as origination fees, and services the buyer can shop for, like appraisal and title services. A section summarizes transactions, outlining debits and credits for both buyer and seller, providing a reconciliation of funds. Reviewing the Closing Disclosure meticulously is essential to verify accuracy and ensure that all financial terms align with the agreed-upon contract.