The housing market in Arizona is once again one of the hottest in the country. After suffering through the worst pain the housing bubble could inflict, the median home value is creeping back over $200,000, a level not seen since 2008, but still far below its pre-housing bubble peak of $264,000. Sales activity is up, as is new home construction. Owner-occupant buyers outnumber distressed property investors for the first time in a while, which is a healthy sign. However, buying a home in Arizona is not without its challenges. Not only are homebuyers faced with rising home prices, tougher loan requirements are keeping many first-time homebuyers at bay. Those who do qualify must then contend with some of the highest average closing costs in the country.

Average Closing Costs in Arizona

Based on a $200,000 home purchase with a 20% down payment, homebuyers in Arizona pay an average of $1,208 in lender fees and $761 in third-party fees, for a total of $1,969 in closing costs. Only four states have higher closing costs: West Virginia, Hawaii, Connecticut and New Jersey. The national average is $1,847.

Breaking down the average lender fees, homebuyers pay $1,151 in loan origination fees, $76 for tax services and $60 for document preparation. Third-party closing costs include $419 for a home appraisal, $431 for settlement fees, $21 for a credit report, $10 for flood certification, $125 for pest inspections, $100 for postage or couriers and $620 for a survey. Title insurance fees aren't included in these averages due to lenders having difficulty in estimating them, but they can add up to $1,000 to final closing costs. Prepaid items such as property taxes and homeowners insurance are also not included.

What Goes Into Closing Costs

Closing costs in Arizona can vary across the state and by lender. For most properties, homebuyers can expect to pay between 2 and 5% of their home's sale price in closing costs. These are typical of the closing costs they see on their good faith estimate provided by the lender.

Loan Origination Fee: The loan origination fee covers most of the lender’s costs in originating, underwriting, processing and funding the loan. The fee is often quoted as a percentage of the loan, or as points, with the typical fee amounting to 1% or 1 point. Homebuyers can often reduce their loan interest rates by agreeing to pay additional points, which are added to the closing costs.

Appraisal Fee: In Arizona, lenders order an appraisal to verify that the value of the home is worth at least the sales price and is reasonable based on recent sales of comparable homes.

Tax Service Fee: Because mortgage loans are subordinate to property tax liens, lenders pay an independent tax service to monitor a homebuyer's property tax payments to ensure they are current.

Closing or Settlement Fee: This fee covers the legal aspects of closing escrow, which is typically handled by the title company.

Title Insurance: Buyers are required to purchase title insurance to protect the lender against title defects. Sellers are required to buy title insurance for the buyer to ensure they have clear title to the property upon closing.

Home Inspection: Some lenders may require a pest inspection if any issues arise from the home appraisal. If a homebuyer wants the home inspected, it is the homebuyer's responsibility to cover the cost, which can be paid as part of the closing costs, but it is not included in the good faith estimate.

Survey: Depending on the type of property and its location, some lenders require a survey to verify property and building lines.

Seller’s Closing Costs

In Arizona, the seller is required to pay half of the escrow fees. The seller also pays for the sales commission, property taxes owed and a home warranty, if applicable. In addition, the seller must purchase title insurance on the buyer.

 

--Richard Best

Idaho (ID): Average Closing Costs

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