Important Note:

I am not a lawyer and none if this should be construed as legal advice. If you need legal advice, you should get it, and you should get it from a lawyer.

Closing Costs

What are they and who pays them?

Closing costs is a generic term that essentially wraps up all the costs of buying and/or selling a home. They come from 3 primary sources.

Title/ Escrow Fees

In Arizona, we do not use lawyers to transfer property. We use title and escrow companies (usually the same company) to handle the money transfers, ensure a smooth transition of the title to the real property, and for drawing up the settlement statements that detail exactly how much money goes to all parties involved, particularly the buyer and the seller, but also lenders, city and county tax agencies, HOA’s, and insurance companies.

Typical fees for title and escrow:

Owner’s Title Policy

This policy is paid for by the seller according to Arizona law, and covers the buyer in case a claim ever arises over the dispute to the title to the property. It is the title company’s job to research the title, correct any errors in title transfer, and generally ensure that title passes from one person to another. However, claims over who owns the property do arise. This policy covers the buyers and the insurance company will then handle disputes.

Lender’s Title Policy

This policy is purchased by the lender if the buyer is financing the sale. These policies cover mechanic’s liens and other unrecorded liens against the home in case anyone other than themselves ever comes to try and foreclose on the property. They are typically paid by the buyer, but could also be covered by the seller if the seller has agreed to cover all or part of the buyer’s closing costs.

Escrow fees

Escrow basically means a holding company. They initially hold on to the earnest money the buyer will deposit, and also handle disputes between the buyer and the seller if the contract is not executed.


“Buyer and Seller authorize Escrow Company to release the earnest money pursuant to the terms and conditions of the contract in its sole and absolute discretion.”

Purchase Contract Section 3f, lines 144-148

These fees typically depend on how much money is being deposited at escrow, which will include the earnest money, and later the buyer’s down payment, the bank’s amount, and any additional cash the buyer needs to bring to closing. At close of escrow, this company distributes all money wherever it needs to go.

The actual escrow fees are typically split evenly by the buyer and seller, though this is negotiable as well.


Closing protection letter

This is essentially an agreement from a title insurance company to a lender that indemnifies the lender against any issues arising from a closing agent’s errors.

These are less than $50 and are paid by the buyer, or closing cost assistance from the seller.


Recording fees

These are the actual fees paid to the county for recording of the deed. These fees are about $60 and are usually split between the buyer and the seller

Lender Fees

These fees are only applicable if the buyer is using a lender to finance part of the offer. We covered the lender title policy already, even though it is part of the lender fees. Other fees include

Loan Origination Fees

These are essentially fees charged by the lender just to create the loan. These fees can vary wildly from lender to lender, but are typically around 1% of the loan amount. They are part of the way lenders make a profit on loans. Not only are these fees negotiable, they are also included in what is called APR, which will help you calculate the difference between lenders once you factor in the origination and other fees the bank is charging. It is worthwhile to balance this and monthly payment, since the monthly payment may seem lower on one loan but the fees may be higher.

Appraisal Fees

If the bank orders an appraisal, somebody has to pay for it, and it’s not the bank.


Section 2m, line 111 of the Purchase Contract specifies who will be paying for the appraisal (normally buyer)
and line 112 specifies if the seller pays for it, whether or not it will come out of the closing costs asked for in section 2j, line 100 of the same Purchase Contract.


Banks always require borrower’s to carry homeowner insurance on the property for as long as you have a mortgage. After all, if the house burns down, you’re not likely to make payments, and they will have nothing to foreclose on. They typically collect 15 months of payments upfront. If the property is in a flood zone, you will need a flood insurance policy as well.


Mortgage Insurance

If the LTV (loan to value) is greater than 80%, the banks usually require mortgage insurance. This simply is an insurance premium paid to an insurance company that guarantees if you quit making payments, and the bank has to foreclose, they will cover any money the lender may lose if the homes sells for less than its worth. They typically collect at least 1 years’ worth of premiums, as well as any other extra mortgage insurance required if using a state or federal program for down payment assistance, such as the FHA.



These are additional payments you can make to the bank in order to buy yourself a better rate.



Taxes are collected by the bank in advance and your tax payments are usually made for you if you have a mortgage. This is because tax-collecting agencies such as the city, county, or state, always have first position to get repaid in the case of a foreclosure. Lenders don’t like being second in line in the case of a foreclosure, so they want to make sure your taxes are paid.

HOA fees


Disclosure Fees

This fee is charged by the HOA for searching their records to see if the homeowner owes any money, etc. and are capped by state law at $400, and also according to law must be paid by the seller.


Transfer Fees

These fees cover the cost of the HOA changing the names in their files and is negotiable according to the HOA Addendum.


Pre-paid fees

If the homeowner has paid ahead on their HOA fees, then the buyer will be charged for all days left in the fees that have been paid and the seller will be refunded for all the days they paid for but will not be using.


Capital Improvement Fees

If the HOA is doing renovations to its infrastructure, they may charge capital improvement fees to all sales in order to help offset the costs for the current homeowners. This fee is negotiable on the HOA Addendum.

Sellers: You will need to know some of these fees if you ive in an HOA anyway since you will need it for the HOA Addendum which is part of the purchase contract. Might as well ask for it before you begin listing.

How Much Cash Do You Actually Need to Close

Let’s use an example:

You offer: $200,000 for a home

You are putting 20% down= $40,000

Bank financing= $160,000

Then you need to ask the bank for a total of all lender closing costs, lets say it is $1800

Ask title company (or the agent to get from title) all closing costs from them. Title will add up everything else including:

  • taxes
  • title fees
  • escrow fees
  • recording fees
  • HOA transfer fees (HOA homes only)
  • capital improvement fees (usually HOA, sometimes city)
  • and all other fees

Let’s estimate another $1500

If you get the bank fees first, title will add those in do the math for you but

Down payment ($40,000)
+ Lender Fees ($1800)
+ Escrow and other ($1500)
= $43,300 Cash Due at Closing

If you have the numbers from the bank, the title company will draw up a preliminary settlement statement and just give you the number, which should be within a few hundred dollars, and depends primarily on changes from the bank which may change if you change loan terms, pay down points, or add or subtract mortgage insurance.

Hope this helps! Let me know if you have any questions.

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