Closing Costs: How Much Should You Pay?

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Posted by Troy Elston, REALTOR on April 27, 2023

Whether you’re a home buyer or home seller, one thing is true for both situations – you’ll need to pay closing costs on your transaction.

Many first-time home buyers don’t realize how much they will have to pay in closing costs, and they may not be aware that there are ways to reduce these costs.

Understanding closing costs can be challenging, but we can provide you with an overview of what you need to know before you finalize your loan. Additionally, we can offer some tips to help you minimize the amount you’ll have to pay.

What Are Closing Costs?

When you buy a home in Arizona, you have to pay extra fees called closing costs. These are fees charged by your lender for making your loan. Closing costs pay for things like checking your home’s value and making sure no one else owns it. The specific closing costs you’ll pay depend on where you live and what kind of loan you take out.

How Much Are Closing Costs?

Closing costs typically make up 3-6% of your loan amount. So, for example, if you borrow $300,000, you might have to pay $9,000-$18,000 in closing costs. Remember, this is in addition to your down payment. However, you might be able to negotiate with the seller to cover some of your closing costs, which is always a big help.

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The average closing costs in Arizona is $4,190.34.

Who Pays Closing Costs?

Both the buyer and the seller must pay closing costs. But usually the buyer pays most of them. You can always try to ask the seller to help pay for them too. That’s called seller concessions.

The time to ask for seller concessions is when your real estate agent writes the offer. Seller concessions can be very helpful if you don’t have enough money to pay for closing costs. But there are limits to how much sellers can offer.

Be aware that sellers can only pay up to a certain percentage of your mortgage value, which depends on the type of loan you have, how much you’re putting down, and whether you’re living in the home or renting it out.

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Seller Concessions Limits

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Conventional Loan Concessions Limits

Primary Residence Purchase:

9% – With Buyer’s Down payment of over 25%

6% – With Buyer’s Down payment between 10 – 25%

3% – Will Buyer’s Down payment less than 10%

For a Second Home:

9% – With Buyer’s Down payment of over 25%

6% – With Buyer’s Down payment between 10 – 24.99%

Investment Property:

2% – Maximum Seller Concession for 20% or more down payment amount.

FHA Loan Concession Limits

FHA loans have a more simple process, and the limit for seller contributions is 6% of the lower value between the home’s appraised value and purchase price. The FHA borrower must provide a down payment of 3.5% of purchase price or more in this case.

VA Loan Concession Limits

VA loans have specific rules for seller concessions. Up to 4% of the purchase price or appraised value (whichever is lower) can be used for escrow accounts, such as prepaid taxes and homeowners insurance, and the required VA funding fee. There is no limit for seller contributions towards discount points, origination costs, survey, appraisal, and credit report fees. Better yet, there is no down payment requirement needed for a VA loan.

How Much Are Closing Costs for a Buyer?

The amount of closing costs a buyer needs to pay depends on various factors such as lender requirements, government requirements, and the type of loan. Additionally, the location also plays a crucial role in determining the closing costs.

Prior to the close of escrow, the lender is obligated to provide the borrower with a document called a Closing Disclosure at least three business days in advance. This document will provide a comprehensive list of all the closing costs that the buyer needs to cover along with the exact amount owed.

Sample Closing Disclosure (PDF)

What are the Typical Closing Costs for a Buyer?

Application Fee

An application fee is a fee that a lender charges a home buyer to process their loan application. It covers the cost of evaluating the application, such as credit checks, background checks, and other expenses. This $0-$500 closing cost fee amount varies from lender to lender and is typically non-refundable.


To determine the value of a property, your lender will engage a third-party appraisal management company that will send an appraiser to inspect your home for safety and overall condition. This helps to ensure you’re not overpaying for a property. 

The appraisal amount sets the limit of how much lenders will let you borrow. Appraisal fees in Arizona usually cost between $300 and $600, but they can be more expensive.

Closing Fee

The closing fee is paid to the escrow company who handles the transaction. The cost of this fee varies by title company, but is usually around $1,200-1,600. It’s common for buyers and sellers to split the cost of this fee.

Below is an example of Pioneer Title closing fees on a local $300,000 financed sale with 3.5% down from buyer. Please note the total escrow fee is $1,460 and is being split evenly by buyer and seller. Also note that the buyer’s lender fees and HOA fees are not displayed here in this example.

Courier Fee

The courier fee covers the transportation cost of mortgage documents and overnight delivery. If your lender imposes this fee, you can expect to pay around $30.

Credit Reporting Fee

A credit reporting fee covers the cost of obtaining and reviewing your credit report and credit score. Typically, these fees are approximately $50.

Discount Points

Paying Discount Points is a totally optional fee for the home buyer. Discount points are a type of fee that home buyers can pay at closing to lower their mortgage interest rate. Each point equals 1% of the loan amount and can reduce the interest rate by approximately 0.25%.

For example, if a home buyer takes out a $200,000 loan and pays two discount points upfront, it will cost them $4,000. In exchange, their interest rate may decrease from 4% to 3.5%. 

This can result in significant savings over the life of the loan, but it’s important to do the math and determine whether paying discount points is the right choice based on your financial situation and future plans. Talk to an experienced lender about discount points.


Prepaids are expenses that may include property taxes, homeowners insurance, and mortgage interest. These payments are deposited into an escrow account, and the funds are set aside and used to pay the bills when they become due. 

Prepaids are typically required at closing to ensure there is enough money in the escrow account to cover the upcoming bills. Prepaids are very common for FHA Financing.

MIP – Mortgage Insurance Premium

When obtaining an FHA loan, an upfront mortgage insurance premium (MIP) is required at closing, which is currently set at 1.75% of the base loan amount. For instance, if you borrow $100,000 to purchase a home, the MIP due at closing is $1,750, and this payment is distinct from your monthly MIP, which can range from 0.15% to 0.75% of your loan value.

Flood Zone

A flood certification may be required if your home is located on or near a flood plain, which typically costs between $15 and $25. This fee is paid to the Federal Emergency Management Agency, which utilizes the data to plan for potential emergencies and identify high-risk areas.

It is important to note that this closing cost is only applicable if you are purchasing a property in a flood zone. In Arizona flood zones are based on 100-year flood zone data. Flash flood zones usually don’t apply here.

HOA Transfer Fees, Disclosure Fees and More

The fee for transferring a homeowners association is charged to cover the expenses involved in transferring the responsibility of HOA fees from the seller to the buyer. This fee ensures that the seller has paid all their HOA dues and provides the buyer with a schedule of payments and the association’s financial information.

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Nearly 33% of all Homes in Arizona are governed by an HOA

Usually, the seller is responsible for paying this fee, but in a highly competitive market or if the buyer agrees to cover all closing costs, they may need to pay it themselves. The amount of the fee varies depending on the policies of the HOA. If there is no HOA in the area, there will be no transfer fee.

Homeowners Insurance (Hazard Insurance)

At closing, many lenders require you to pay for a full year of homeowners insurance upfront. The cost of homeowners insurance is typically around $35 per month for every $100,000 in home value. 

For instance, if you purchase a $200,000 home, your monthly homeowners insurance premium may be around $70. This means that your lender may ask you to pay $840 upfront into an escrow fund. If you have an escrow, the homeowners insurance, along with property taxes, will be added to your principal and interest mortgage payment.

Homeowners insurance provides protection for your home in case of damage. It is typically required by mortgage lenders as a condition of the loan. In addition to covering damages to the structure of your home, you can also get coverage for the contents inside and liability protection if someone is injured on your property.

Home Warranty Coverage

A home warranty is an optional service contract that provides coverage for the repair or replacement of major home systems and appliances. This type of warranty is typically purchased by homeowners as a way to protect themselves from unexpected repair costs.

Home warranties typically cover items such as heating and cooling systems, plumbing, electrical, and kitchen appliances like refrigerators, ovens, and dishwashers. 

When a covered item breaks down or stops working, the homeowner can contact the home warranty company to request service. The company will then send a licensed contractor to diagnose the problem and make any necessary repairs or replacements.

It’s important to note that home warranties typically have limitations and exclusions, so it’s important to read the contract carefully and understand what is and isn’t covered. Home warranties may also require the homeowner to pay a service fee or deductible for each repair request. This should not be confused with Homeowner’s Insurance.

Loan Origination Fee

A loan origination fee is a fee charged by a lender for processing a new loan application. It typically covers the lender’s administrative costs for creating the loan.

The typical percentage for a loan origination fee is around 1% of the total loan amount. However, the exact percentage can vary depending on the lender and the type of loan. It’s important to ask your lender about the specific origination fee for your loan.

Lender’s Title Insurance Policy

Lender’s Title Insurance is a type of insurance policy that protects the lender in case there are any issues with the title of the property being financed. It ensures that the lender has a valid and enforceable lien on the property in the event that there are any liens or title defects. 

If any issues arise with the title, the lender’s title insurance policy will cover the costs associated with resolving the issue. This type of insurance is typically required by lenders and is purchased by the borrower as part of the closing costs.

Lead Based Paint Inspections

Lead-based paint inspection is a closing cost that a home buyer might incur if purchasing a property built before 1978. The inspection involves testing for lead-based paint hazards in the home. 

This is important because exposure to lead can cause serious health problems, especially for young children. The cost of the inspection varies depending on the size of the property and the extent of the testing required.

Notary Fee

The Notary is an optional fee that gets applied only if buyers request that a Notary is required to meet them at a designated location such as their home or place of business. The fee for this service is usually between $100-$200.

Owner’s Title Insurance Policy

Owner’s Title Insurance is a type of insurance that protects the homebuyer from any financial losses if there are any legal disputes over the property’s title in the future. 

The closing costs associated with Owner’s Title Insurance cover the cost of a title search to ensure that there are no liens or outstanding claims against the property, and the issuance of the insurance policy. The cost of Owner’s Title Insurance varies depending on the value of the property but is usually a one-time payment made at closing.

Pest Inspection

A pest inspection may be mandatory before closing on your loan in certain states, and in some cases, for homes purchased using a VA loan or if there is a potential issue as determined by the appraiser. Typically, the cost of a pest inspection is around $100, and who covers this cost varies based on the situation, with either the buyer, seller, or lender potentially responsible.

Prepaid Daily Interest

The prepaid daily interest charges refer to the interest that accumulates on your loan from the closing date to the date of your first mortgage payment, which your lender may require you to pay in advance. The amount of interest you’ll pay will depend on the loan amount, interest rate, and closing date.

Private Mortgage Insurance

Private Mortgage Insurance (PMI) is an insurance policy that protects the lender if you default on your loan. If you put down less than 20% of the home’s purchase price as a down payment, your lender may require you to pay for PMI. 

The cost of PMI varies depending on your loan amount and credit score, but it can add up to hundreds of dollars per year. You may have the option to pay for PMI upfront at closing or as part of your monthly mortgage payment.

Property Tax

Maricopa County property taxes are typically paid twice a year, and the amount due is based on the assessed value of the property. At closing, the buyer may be required to pay a prorated portion of the property taxes for the remainder of the year, based on the closing date. 

This prorated amount is typically held in an escrow account by the lender and used to pay the property tax bill when it comes due. The exact amount of the property tax due and the prorated amount the buyer must pay at closing will depend on the assessed value of the property and the closing date.

Rate Lock Fee

The rate lock fee is a charge that some lenders may impose to secure your interest rate from the time of mortgage preapproval to closing. Typically, the fee amounts to 0.25% to 0.50% of your loan value, but some lenders offer this service at no cost based on the length of the rate lock period.

Recording Fee

A recording fee is a fee charged by the county government to record the transfer of property ownership from the seller to the buyer. In Maricopa County, Arizona, the current recording fee is $30 for the first page and $10 for each additional page. 

This fee covers the cost of processing and recording the deed or other legal documents related to the property transfer. It is assessed to ensure that the transfer of ownership is legally recorded and documented.

Title Search Fee or Title Fee

Title search fees cover the cost of searching for any claims on the property you plan to purchase, such as liens, unpaid taxes, or bankruptcies, that could affect the seller’s ownership of the home. In most states, title insurance companies conduct the title search, while in other states, real estate attorneys are responsible. The typical cost for a title search is between $200 to $400 in Arizona.

See Typical Title Insurance Rates from First American Title (PDF)

Lender Underwriting Fee

The underwriting fee is a charge by the lender to cover the cost of evaluating and verifying your loan application. It covers the cost of reviewing your credit report, income and employment documentation, and property appraisal. The fee usually ranges from $400 to $900, depending on the lender and the complexity of your loan application.

VA Funding Fee: (VA Loans Only)

A VA funding fee is a fee that must be paid at closing when purchasing a home with a VA loan. It goes towards administrative costs for the VA loan program and the amount is based on factors such as down payment, whether it’s a purchase or refinance, and if it’s the first time or subsequent use of your VA benefits. 

For example, for a first-time user with less than a 5% down payment, the fee is 2.15% of the total loan value, while a 10% down payment lowers the fee to 1.25%. 

The fee can be waived for certain individuals such as those with VA disability or Purple Heart recipients in active-duty capacity.

How Much Are Closing Costs for Sellers?

As you can see, buyers have a long list of closing costs to deal with. Buy what about a seller? Let’s take a quick look at what some of the most common closing costs are for sellers in Arizona.

Seller Concessions to Buyer

In some cases where the housing market is slow, home sellers might offer their buyers a credit towards closing costs to sweeten the deal. If you as the seller agreed to cover a portion of the buyer’s closing costs in the sale agreement, you’ll need to pay for those credits during the closing process.

Escrow Fees

Escrow fees are charged when an escrow account is used to hold funds during a home sale. These accounts provide a level of security for both the buyer and the seller, ensuring that the funds are safely held until the sale is finalized. 

In many cases, the seller may cover 50% of the escrow fees since both parties benefit from the use of the account. Looking for an Arizona title company? Contact real estate agent Troy Elston for a list of excellent escrow companies.

HOA Fees

HOA fees in Arizona can be a closing cost for a home seller. If you’re selling a home that’s part of an HOA, you may be required to pay the prorated portion of the HOA fees that covers the time period between the closing date and the end of the HOA’s billing cycle. This is because the new buyer will be responsible for paying the full amount of the HOA fees going forward. 

The exact amount of the HOA fees will depend on the specific HOA and the terms of your agreement with them. It’s important to factor in the prorated HOA fees when calculating your closing costs as a home seller in Arizona.

Keep in mind that additional fees and fines will need to be addressed by the Seller before the property transfers to the buyer. Some examples of these fees are violation fees, assessments and other past due balances and charges.

HOA Fees Breakdown
  • Transfer Fees (Often Split equally between home buyer and home seller)
  • Capital Improvement Fees (negotiable)
  • Pre-Paid Association Fees (paid by buyer – usually two months in advance)
  • Disclosure Fees (paid by seller)
  • Assessments (paid by seller)
  • Other Fees – There are a number of other fees depending on the HOA. For example, if the HOA is located in a Master Planned Community such as Sun City, there will be additional resort fees, golf course fees and more. Always check in advance to see what kinds of fees and assessments exist in the HOA for the house you intend to buy or sell.

Property Taxes (Prorated)

Prorated property taxes are taxes that are owed on a property up to the date of the sale. As a home seller, you are responsible for paying your portion of these taxes at closing. The amount you owe can vary depending on the state and municipality. 

It’s important to check with your local county clerk’s office to determine the exact amount you owe first. Once you have paid the prorated taxes, the buyer will take over responsibility for paying future property taxes.

Real Estate Commission

In Arizona, a real estate commission is the fee paid to real estate agents for their services in facilitating the sale of a property. This commission is typically a percentage of the final sale price of the property and is split between the buyer’s broker and the seller’s broker. 

As a home seller, you would be responsible for paying the commission, which is usually negotiated and outlined in a separate listing agreement between you and your real estate agent. 

The commission is typically paid as a percentage of the sale price, usually ranging from 5% to 6% of the final sale price of the property, and is deducted from the proceeds of the sale at closing.

Check out our commission discounts here.

Recording Fees

Whenever a property changes hands, Maricopa county requires that recording fees be paid. The seller often pays these fees.

Owner’s Title Insurance Policy

Title insurance is a form of protection that the seller typically pays for at the closing. Unlike other types of insurance, you do not have to pay a monthly premium for title insurance. Instead, the seller makes a single payment at closing, providing you with coverage for as long as you own the property. 

In Arizona, title insurance costs approximately 0.5% to 1% of the total value of your home loan.

Capital Gains and Income Tax

When you sell a property in Arizona, you may be subject to capital gains tax and income tax.

Capital gains tax is a tax on the profit you make from selling an asset, such as a property. The amount of capital gains tax you owe is determined by the difference between the sale price of the property and its original purchase price, minus any allowable deductions, such as improvements or closing costs. 

The tax rate on capital gains can vary depending on the length of time you owned the property and your income level. If you owned the property for more than a year, it is considered a long-term capital gain and may be taxed at a lower rate than short-term gains.

Income tax may also be applicable if you have rental income from the property or if you sell the property at a profit within a short period of time. This is known as ordinary income tax, and it is based on your overall income and tax bracket. 

In addition, if you claimed depreciation on the property while it was a rental, you may owe depreciation recapture tax when you sell.

It is important to consult with a tax professional to determine your specific tax obligations related to the sale of a property in Arizona.

How Can I Reduce Closing Costs?

Always remember that closing costs are negotiable. Whether you’re negotiating with the buyer, seller or the lender, there are a few ways to minimize these closing costs and save money.

Reducing closing costs when buying a house can be done in a number of ways. 

Negotiate with the Seller

One option is to negotiate with the seller to cover some or all of the closing costs as discussed earlier in this article.

Shop for Lenders

Another option is to shop around for different lenders and compare their closing cost estimates, as fees can vary. It’s also important to review the loan estimate and closing disclosure carefully to ensure that all fees are accurate and there are no unnecessary charges. 

Additionally, consider opting for a shorter rate lock period and conducting a title search on your own to potentially save on those fees. 

Finally, consult with a knowledgeable real estate agent and attorney to help navigate the closing process and identify potential cost-saving opportunities.

Negotiate with the Title Company

If you’re a repeat customer or investor, using the same title company may be a way to reduce closing costs. Often, when asked, a title agent you have a relationship with will provide you with an investor discount. You can also shop around for the lowest title insurance policy .

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How Do I Estimate Closing Costs?

To estimate closing costs for a home purchase, you can typically expect to pay between 2% and 5% of the home’s purchase price. These costs can include loan origination fees, appraisal fees, title search fees, title insurance, underwriting fees, escrow fees, and more

Some costs, like property taxes and prepaid interest, will depend on the time of year and the terms of your loan. You can ask your lender for a Loan Estimate which provides an itemized list of expected closing costs. 

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Additionally, you can consult with a real estate agent or title agent who can help you understand the specific closing costs associated with your transaction.

Do Lenders Have Different Closing Costs?

The short answer is, yes. It’s always a good idea to shop around for lenders to save money on closing costs. Different lenders may offer different interest rates, fees, and discount points, which can significantly impact the overall cost of your mortgage. 

You can compare loan estimates from multiple lenders to see the differences in their costs and terms.

However, keep in mind that the cheapest option may not always be the best option for your specific financial situation. Be sure to consider factors such as the lender’s reputation, customer service, and the type of mortgage product they offer before making a final decision.

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Troy Elston is licensed Realtor in Phoenix Arizona. With over 20 years experience in real estate sales, Troy offers the highest degree of experience, service and integrity in the industry.
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