The housing market forecast in Arizona is looking as hot as our summer sun. Whether you’re an AZ native tired of renting, a family wanting to upgrade to a bigger single family home for sale in Phoenix, or snowbird wanting a cheap second home in Arizona, this guide will help you understand the basics of buying a house in Arizona. If you’re asking any of the following questions, this eBook is for you:
According to US Census data, approximately 67 percent of Americans were homeowners as of mid-2020. Homeownership by age group is shown in the chart below from the U.S. Census Bureau.
Are you ready to join their ranks? Utilize this guide to prepare for each stage of buying a house in Arizona.
Is your credit sufficient to score great financing? Credit Karma reports that people buying a house in Arizona for the first time have an average VantageScore of 671. Luckily, Copper State Credit Union members have free access to their credit score right from their online banking dashboard. There are two different credit-scoring models; mortgage lenders use FICO scores while our online banking tool utilizes VantageScore. However, they’re similar enough that you can feel comfortable using one of them as a benchmark.
Credit score is a big factor impacting the home loan interest rate you’ll qualify for. It can be helpful to see specific examples of the impact home loan rates can have on your mortgage.
The bottom line? Higher credit score equals a lower interest rate, which saves you money.
Your credit score is crucial to getting you a top-notch home loan. Don’t skip this step! And if you find that your score isn’t quite what it needs to be, don’t worry. There are several steps you can take to improve it significantly in as little as 6-12 months.
Pro tip: Make all your debt payments on time. This one action contributes to about one-third of your credit score, and can have a positive effect in as little as 12 months.
Wait, didn’t we just talk about this? Nope! Your credit score as mentioned above is simply a measurement of the information found on your full credit report. Credit reports include specific information about payment history, length of credit, mix of credit types, etc.
Know that you’re entitled to get your full credit report for free once every year. So, request it, read it thoroughly – yes, even though it seems like it’s 1,762 pages long – and check carefully for any errors or inconsistencies. (Copper State CU members can also access their credit reports via online banking.)
As many as 40 million Americans have errors on their credit reports! Errors can be corrected by contacting the reporting credit bureau directly. Complex errors may take more time and effort to correct, but the credit bureau is required by the Fair Credit Reporting Act to work with you to get these fixed. Don’t just let this one go, either – significant errors on your report can bring down your credit score; and it does, for about 5% of Americans.
This is why it makes sense to address credit reporting errors before you buy your dream home.
Yes, you’ll want to do this before you even start looking for a home. Why? Because lenders may prequalify you for a mortgage that’s above what you actually want to pay for your average monthly mortgage payment.
You’ll need to consider all sources of income, current debt payments, and other personal/family expenses to determine how much you want to pay each month for housing. Download this simple, editable budgeting spreadsheet to help you get started.
Or take a look at our free eBook: How to Create A Monthly Budget That Works.
Make sure you’re factoring in these three well-known ongoing homeowner costs:
Principal + Interest + Taxes + Insurance (+ if applicable, HOA dues)
Escrow Accounts – Did you know that Homeowners’ insurance premiums and property taxes (part of your monthly mortgage payment) go into an escrow account? This is simply an account established by the lender on your behalf. Then, when the insurance and taxes come due, they’ll use those funds to pay the bills. This is to make sure you have the money for taxes and insurance when the time comes… aka automated budgeting via your lender! Pretty cool, huh? This can also apply to private mortgage insurance, which we’ll discuss a bit later on.
Feeling overwhelmed? Use our responsive mortgage affordability coach (below) to run different sets of numbers according to your situation.
Or, ask a mortgage specialist to run the numbers for you. A quality mortgage specialist can do this before you even get prequalified or do a mortgage loan application.
You’ll need to put away between 1%-3% of your home’s value on a yearly basis for repairs and improvements. You may not use the full amount each year, but you’ll want it growing in your savings account for when something big does happen.
Here’s the skinny on down payment minimums you’ll need for the two most common types of mortgage loans:
Zillow’s home value index is seasonally adjusted and only includes the middle price tier of homes.
As you may know, homebuyers tend to get the best rates when they contribute 20% of the purchase price as a down payment. Your average monthly mortgage payment will also differ quite a bit based on the down payment you make. Using the same example as above, 20% would be a whopping $60,000 down payment for a $300,000 home in an affordable Phoenix suburb.
Down payments definitely require significant funds! This is why it’s good to start saving up well before you jump into the house buying pool. Not ready? Start saving today. A savings account like this one named for your goal, i.e. House Down Payment could motivate you to have a home movie night once or twice a month instead of going to the theater (Redbox & homemade popcorn, anyone?!) That simple sub will save you around $50 a pop for a family of two. Make the switch twice a month and that’s $1200 per year you’re able to save for a house!
You can also check with your lender to see if you qualify for any down payment assistance programs. Additionally, there are ways to draw from your IRA (penalty-free) for a first-time homebuyer down payment if that’s a route you’d like to explore.
Curious about what else you’ll have to save for if you’re buying a house in Arizona for the first time? Check out this article to learn more.
Whether you’re looking for a single family home for sale in Phoenix, or a historic home in the suburbs, or just any Arizona home for sale with a pool, filling out a three-column chart like the one above will help you determine your house buying priorities. Maybe you cannot live without ample storage space in the garage, but you don’t care if the yard is fenced. A pool is something you’d like, but you could live without if needed. Start brainstorming within these three categories – Must Have, Like to Have, and Don’t Need. Once you’ve written everything you can think of, consider whittling down that “Must Have” list to a realistic list of 5 or so items.
It may help to poke around online to see what houses are available, in what locations, and with what amenities – this helps you ensure your list is realistic and in line with your price point. Popular home search areas in Arizona include Glendale, Phoenix, and Scottsdale.
Then, finalize your list and add it to the pile of documents you’ll need (read on for the list!)
One of the most cumbersome parts of buying a house in Arizona is gathering all the documentation you need! From tax returns to bank statements, there’s a lot of work on your end to get these items together for your lender. So, we decided to make it easy for you to plan ahead – here’s a checklist of all the documents you’re likely to need if you’re planning on a mortgage loan. Take a look, print it out if you like, and start getting these documents ready!
Once you’ve completed all the steps above and you’re fully prepared to buy a house in Arizona, it’s time to start the process in earnest. Read on to find out how.
Once you have taken care of the basics (credit, budget, down payment, and home preferences), it will be time to assemble your home loan team of experts. Namely, a realtor and an experienced mortgage lender.
Realtor Tips: There are two types of realtors: Listing agents and buyer’s agents. Listing agents work for the seller of the home. It’s worth considering finding a buyer’s agent to represent your needs instead of using a realtor who is selling someone else’s property. Listing agents will, understandably, care more about the seller’s priorities than the buyer’s. The buyer’s agent and listing agent will split the commission fee for the sale of the house, which is usually 5%-6% of the purchase price.
Lender Tips: You want a lender who offers competitive rates, quick turnaround on loan processing, and low closing costs. Credit unions in Arizona are a reliable choice for mortgage lender, due to good rates, generally lower fees, and excellent member service. Credit unions exist for their members, not shareholders, so your priorities are top of mind for them. Copper State Credit Union mortgages offer no origination fee, saving you an average of $2,500 on closing costs.
Once you’ve found your realtor and lender, you’re ready to start the pre-approval process.
Choosing which type of mortgage will fit you best is tricky business, which is why we love to use this comparison tool on Mortgage Types to help.
After completing the application, your credit union mortgage specialist will provide you a pre-qualification letter for a certain amount, as long as you meet their criteria as a borrower. That pre-qualification letter is like having an engagement ring when going wedding dress shopping: that piece of paper lets sellers know that you are ready, willing, and qualified to purchase their home and gives you the freedom to make an offer when you’re ready. Important: prequalification letters are good for 60 days, so wait until you’re truly ready to start looking for a home before you take this step.
To get pre-qualified, you’ll only need a few documents, including paystubs to prove steady income and bank statements that show available funds for down payment. Later, you’ll need a lot more documentation. If you haven’t already, check out our quick & easy Mortgage Documentation Checklist to help you keep track of what you’ll need to provide.
Now comes the fun part! Online resources such as Trulia.com, Zillow.com, Realtor.com, and HomeFinder.com are excellent places to start if you don’t know what you’re looking for yet (or even if you do.) It’s a convenient and comfortable way to narrow down your home search without getting up from the couch. You could probably view ten properties per hour online, whereas driving to a house, walking through, and chatting with your agent could take an hour for one listing.
Play around with customizations on your search to include the desired number of bedrooms, price, location, view, and more. You may even want to read our ranking of the top 10 best neighborhoods in Phoenix if you’re searching in the Phoenix real estate market for a house.
Once you’ve browsed around online and have more of an idea of the types of houses you’d like to see in person, it’s time to move on and actually go to the properties.
Open house events offer a convenient and stress-free way to see many homes in a short amount of time. Or, your agent may have access to a lockbox for homes that are unoccupied and can let you in to view the property that way. Make a list of open houses in your area of interest and do a few visits, making sure to take notes and pictures of each home so that you can discuss their features later. You may even want to bring your home preferences list (Must Have/Like To Have/Don’t Need) so that you can revise it as you browse open houses.
Don’t forget to consider the neighborhoods as well. When you buy a house in Arizona, you are not just purchasing the residence, but also the community in which the home is located.
Take some time to scope out local amenities, shopping, restaurants, schools, and even meet the neighbors! You’ll know better if the community or neighborhood is a good match for your needs after spending a day in the area walking or driving around.
Pro tip: Visit the community more than once, and at various times of the day and evening. This gives you a full picture of the area you’re buying into.
The importance of this step cannot be overstated. Once you have decided to buy a house in Arizona, especially if you’ve gotten prequalified or made an offer, understand that any changes in your finances can jeopardize your home loan! Seemingly small choices like applying for a new department store credit card or inquiring about a new car (with credit pull) can affect your credit report & scoring, possibly preventing you from completing the Arizona mortgage closing process. It can also affect the rate or the terms of your loan.
And it’s not just credit pulls that will impact your house buying experience. Here are some other pieces of advice to follow during this delicate time:
Congratulations! You’re now prepared to enter the final stage of the home buying process. Once you’ve found the house you want to buy, you’ll work with your agent to make an offer, enter into escrow, and close on the loan.
You’ve made it this far in the home-buying process – congratulations! Let’s say you’ve found your dream house: the price is right, it’s in a cute, affordable Phoenix suburb, has a pool, and a yard for the dogs to run in – what comes next? This is the part that spooks a lot of people because there’s a lot that has to happen before you get your keys. Let’s break it down:
This is why prequalification was so important! Once you find that house, you’ll want to talk with your real estate agent on the details get it sent over right away. Your agent may have inside information about the seller or the property that could guide your offer in different ways depending on the situation.
If the house has only been on the market for a week and your agent knows that twelve other buyers have looked at it during that time – they’re more likely to counsel you to offer asking price or higher.When you agree on what to offer, your agent will draft a Purchase Agreement and send it to the seller’s agent. Once signed by both parties, the Purchase Agreement is a legally binding document.
Purchase agreements typically include the following:
Based on all of these details, the seller could accept your offer, counter it, or decline it.
“Earnest Money” or a “Good Faith Deposit” is a deposit towards the purchase of real estate made by a buyer to demonstrate that they are serious about wanting to complete the transaction. If you’re buying a house in Arizona, expect to put down about 1% of the purchase price at this point. This is the first chunk of your down payment that is paid.
Around this time you’ll receive a packet of disclosures from your mortgage lender that you’ll need to review. Included will be an itemization of what you owe for closing costs. Closing costs are a different expense than your down payment.
Closing costs generally fall into three categories: Prepaids (HOA dues, insurance, taxes), Lender Fees, and Third Party fees. You’ll need to have 3-5% of the loan amount set aside to pay these closing costs at the time you sign the final documents.
Closing Costs can include any from the following list:
An appraisal is an unbiased professional opinion of the value of a home. Qualified appraisers create a report based on sales of similar properties, a visual inspection, and details of the home like square footage, etc. The appraisal value can affect the home purchase if it comes back much higher or lower than anticipated. An appraisal is almost always a requirement of the mortgage lender if you’re buying a house in Arizona.
Appraisal fees are in the ‘prepaid’ category which means you’ll pay at the time of the appraisal, not at closing. This fee is collected by your lender when the appraisal is ordered, and will usually come in around $400-800 for homes in Arizona.
Commonly confused are the Appraisal and the Inspection. They serve different purposes! The Appraisal, as we mentioned above, is about establishing the value of the property. The Inspection, on the other hand, focuses on the condition of the property. You’ll set up the inspection on your own (or your agent can help). The inspection will give you valuable information about the home you’re buying, so that you know potential issues that you’ll need to take care of. Or, it can provide you leverage in negotiating with the seller if something about the home is unacceptable.
The home you’re buying is required to undergo a title search. This will be set up by your lender and is often completed by a partner title company. This public records search determines the property’s legal ownership, and ensures that there are no other claims to the property. Once this is complete, you’ll pay for title insurance (via closing costs) which is good for the life of the property’s ownership. According to an Investopedia article, title insurance protects lenders and buyers from financial loss due to defects in a title to a property. The most common claims filed against a title are back taxes, liens, and conflicting wills. A one-time fee paid for title insurance covers pricey administrative fees for deep searches of title data to protect against claims for past occurrences.
Also known as Hazard Insurance, this protects your new home against hazards such as lightning, fire, and theft. For some homes subject to flood risk, you may also have to add on flood insurance. Insurance is a requirement that you’ll have to provide proof of to your mortgage lender up to two weeks in advance of closing on the home loan.
You’ll walk through the property with your agent about a week before closing to ensure all of the components of the Purchase Agreement were upheld by the seller, and nothing about the property’s condition has changed. This is also when you’ll verify that any previously agreed-upon repairs were made. This is the last thing you’ll do before signing paperwork and closing on your Arizona mortgage!
Your mortgage lender will be gathering updated financial information from you in the weeks leading up to the closing – like most recent paystubs and bank statements – as well as check your credit again. They’ll do another employment verification and ensure your funds for closing are valid and available. When you show up to sign closing documents, bring a valid photo ID such as driver’s license or passport. You’ll need to have the remainder of the down payment and closing costs as well – many title companies are requiring those funds to be wired, rather than bringing a certified check to the closing.
And, after signing your name about 100 times…
From all of us at Copper State Credit Union – congratulations on your new Arizona home! We’re glad you’re here.🌵
This article is intended to be a general resource only and is not intended to be nor does it constitute legal advice. Any recommendations are based on opinion only. Rates, terms and conditions are subject to change and may vary based on creditworthiness, qualifications, and collateral conditions. All loans subject to approval.