Closing costs are a key part of buying a home – yet too frequently, they come as a surprise to first-time homebuyers. It’s important to account for closing costs because they can add thousands of dollars to the overall amount of money buyers need to bring with them to close on a house.
What exactly are closing costs? They’re the various fees buyers need to pay to buy a home – like mortgage origination fees, escrow fees, and attorney fees. Although fees like the home inspection and the home appraisal are not technically closing costs (since you pay them before closing), many homebuyers lump them into this category.
So exactly how much money will you need? Closing costs are going to vary not only state by state, but house by house. Here’s what you need to know about closing costs in Arizona.
Who pays for closing costs in AZ?
Both the buyer and the seller pay for closing costs in Arizona, but they’re responsible for different fees. Buyers pay most of the closing costs related to settlement, while sellers pay for the agent commission-related closing costs – as well as any agreed-upon repairs. See below for exactly what each party pays.
How much are average closing costs in Arizona?
In Arizona, closing costs for buyers range from 2-5% of the home’s sale price.
- For a $200,000 house, you’ll pay $4,000-$10,000
- For a $300,000 house, you’ll pay $6,000-15,000
- For a $400,000 house, you’ll pay $8,000-$20,000
- For a $500,000 house, you’ll pay $10,000-$25,000
- For a $600,000 house, you’ll pay $12,000-$30,000
And closing costs for sellers are typically around 6-7% of the home’s sale price, with much of that being commission costs.
Arizona closing costs – buyer
- Loan origination and underwriting fees (1% of loan amount)
- Home inspection ($400-$500)
- Optional inspection: Home + termite ($510)
- Optional inspection: Home + termite + pool ($575)
- Optional: radon screening ($250)
- Optional inspection: mold and pest ($100)
- Home appraisal ($500-$700)
- Credit report fees ($25)
- Title fees ($550-$1,300)
- Courier fees ($100)
- Recording fees ($50)
- Escrow fee? ($750)
- Property taxes (varies)
- HOA (varies)
Arizona is one of the few states where the buyer nor the seller have to pay transfer taxes. This is great regardless of which side of the transaction you’re on, since a 1-2% transfer tax can easily add up to thousands of dollars in closing costs.
While some closing costs – like the WDO inspection – are optional, consider the cost of finding out after you’ve bought the property that it has extensive termite damage – and termites are a common issue here. According to Urban Desert Pest, only one state has more termite activity per home than Arizona (and that’s Hawaii). Saving $100 during the inspection can quickly turn into spending $10,000 out-of-pocket on unavoidable remediation if you’re not careful.
“Termites naturally live in AZ so it is not unusual to find termite activity at house,” observes local agent Brock Embree. “What is important is to find out what needs to be done for maintenance, and if they have caused damage already. Also a lot of lenders require a termite inspection, so it is best to do this up front.”
HOA fees: something to look out for in AZ
If you’re not originally from Arizona, the HOA part of closing fees might surprise you.
“Arizona seems to be the land of HOA they are everywhere,” notes Embree.
When you break it down, the HOA fees fall into several categories.
“HOAs can charge a transfer fee, disclosure fee, prepaid dues, and/or capital improvement fee. Very broadly speaking the transfer fees and capital improvement fees are negotiable. Transfers are typically between $100-$1,000 but they can go higher, Capital improvement fees can range from a flat rate of a couple hundred dollars to a percentage of the purchase price.
The seller legally has to pay the disclosure fees if they are applicable, and those can not be more than $400. Prepaid dues are paid for by the buyer since they are typically applied to the first HOA dues. Typically we see prepaid dues being anywhere from 1-2 months or quarters depending on how the HOA is structured.”
Arizona closing costs – seller
- Commission fees (3% to each agent for a total of 6% if it’s a traditional brokerage)*
- Title fees (average .5% for homes under $1m – approx. $3,000)
- Escrow fee ($750)
- Optional- home warranty ($300-$600)
- Loan reconveyance fee ($50-$65)
- Title search ($75-$200)
- Mortgage payoff (varies)
- Attorney fees (varies)
- Concessions to buyer (varies)
- Property taxes (varies)
*Trelora charges a 1% listing fee, which includes everything sellers would get from a traditional brokerage, with 2-3% recommended for the buyer’s agent for a total savings of up to 50%.
How can you save on closing costs?
Saving on closing costs isn’t easy since many costs are an essential part of the homebuying process (like the home appraisal). However, there are a few steps you can take to try and save some money.
- Take advantage of local and state offerings. The Arizona Department of Housing offers Home PLUS DPA, a 30-year fixed-rate mortgage with a down payment assistance (DPA) grant that can be used toward the down payment and/or closing costs. Your city likely offers additional assistance; Sedona, for example, recently launched a down payment assistance program for local workers that gives up to $25,000 to qualified homebuyers.
- Some closing costs are optional, like the radon inspection. You can test for radon by yourself for cheaper – however, the benefit of having an inspection done is that if there is an issue, you can request radon remediation in negotiations (thereby potentially saving yourself thousands of dollars). Although you can opt out of this test, completely, it’s worth noting that about 1/15 homes are estimated to have elevated levels of radon gas – and radon exposure is thought to be responsible for around 21,000 lung cancer deaths per year.
- You can talk to potential lenders about their closing costs during the shopping around process. All buyers should talk to several lenders about loan solutions – or work with a mortgage broker like Trelora, that can shop around to lenders for you – because each lender is going to offer slightly different rates and may charge different fees.
- As the buyer, you can also request a seller assist as part of your offer to buy the home. If you offer $300,000 for a $295,000 home with a $5,000 seller assist, for example, you’re really paying $295,000 overall – but this allows you to roll some of your closing costs into the cost of the loan over time, which might make it easier to pay for.
Keep in mind that if you weren’t budgeting for closing costs when you started saving for a home – and now realize you need a lot more cash on hand than you anticipated – you can opt to pull money out of what you were saving for the down payment. With a conventional loan, you can put down as little as 3%.
How Can I Figure Out My Closing Costs?
Your best bet for figuring out your own closing costs is to meet with a Realtor and mortgage advisor. Although you can try to use a closing cost calculator, be aware that this will only provide you with a rough estimate. Costs can vary depending on the service provider, the house in question, and other factors, like time of year (since this impacts what’s put into escrow).
If you’re looking for a quick estimate, though, once you have the important information (like home price and taxes) you can use online tools, such as Nerdwallet‘s.
So: are closing costs a hurdle for buying your Arizona home?
Don’t let closing costs get in the way of owning your own home – especially when there are so many options available.
“Don’t let them deter you from purchasing a property. Focusing on their downpayment and having enough money to cover the inspections and appraisals are the biggest hurdles; everything else just gets incorporated into the loan,” recommends Embree. “I would also recommend working on the financial aspect of a down payment early and get connected with a lender months possibly even years prior to actually buying a home.”
