How to Buy a House in Arizona: 6 Steps

Buying a house represents a substantial financial commitment. In Arizona, the average home value is $433,271, which is higher than the national average of $362,481. This disparity highlights the need for prospective buyers to carefully evaluate their financial readiness and explore all available resources.

Understanding down payment assistance programs, mortgage types and Arizona-specific regulations can ensure a smooth journey toward homeownership in the Grand Canyon State. MoneyGeek compiled pointers to help you navigate the homebuying process in Arizona, from saving for a down payment and choosing the ideal location to finding the best financing option for your particular needs and credit history.

According to the U.S. Census Bureau, the homeowner vacancy rate in Arizona for the second quarter of 2024 stood at 1.0%. The homeowner vacancy rate measures the percentage of available homeowner housing units that are vacant and ready for sale. It serves as an indicator of the housing market's health and availability.

Arizona's homeowner vacancy rate of 1.0% suggests a high demand for limited inventory. When the vacancy rate falls between 1.0% and 1.9%, it indicates significant demand for the available homes. Homebuyers in Arizona might face fewer choices and potentially higher competition for available properties. Buyers may need to act quickly and be prepared for competitive bidding situations.

Before purchasing a house in Arizona, review your financial and credit history. A strong financial profile significantly enhances your chances of getting approved when applying for a mortgage.

Your credit score plays a pivotal role in determining the mortgage loans and interest rates for which you qualify. A higher score generally improves your chances of securing a favorable rate. As of the third quarter of 2023, the average credit score in Arizona was 713, according to Experian.

If your credit is less than stellar, specifically in the "poor" range of below 580 on the FICO scale, buying a house is still possible, though getting approved for a mortgage may present challenges. Check the table below to see which mortgage type is ideal for you based on the minimum credit score requirements.

Source: Experian

Your debt-to-income ratio (DTI) provides lenders with a snapshot of how much of your monthly income is dedicated to debt payments. This helps them evaluate the amount of mortgage debt you can responsibly manage. In Arizona, the average mortgage debt was $261,706 in the third quarter of 2023, according to Experian. This figure underscores the substantial financial responsibility that comes with homeownership.

Monthly debt payments factored into your DTI include mortgage payments, credit card bills, car loans, student loans and other debts. Use our debt-to-income ratio calculator below to see your front-end DTI, back-end DTI and total monthly debt payments. The front-end DTI represents the portion of your income that goes towards housing costs, while the back-end DTI includes all your monthly debt obligations.

Buying a home is a significant financial decision, and it's essential to avoid the mistake of purchasing a house you can't afford. The 28% rule serves as a helpful guideline, suggesting that you should not spend more than 28% of your monthly income on your mortgage payment. This rule helps ensure that your housing costs remain manageable and don't strain your finances.

According to the U.S. Bureau of Labor Statistics, the median annual income in Arizona in April 2024 was $47,680. This equates to a gross monthly income of $3,973 before taxes. Applying the 28% rule, a homeowner in Arizona should aim to keep their monthly mortgage payment at or below $1,113. This approach helps maintain a balanced budget and prevents financial stress.

Use our mortgage calculator below to get a ballpark figure of your monthly mortgage payment in Arizona.

A down payment is the initial amount of money you pay when purchasing a home, often set at 20% of the home's price. This standard can pose a significant challenge for many prospective homebuyers. In Arizona, for instance, the average home value is $433,271, which translates to a 20% down payment of $86,654. For homes above the average, such as those valued at $550,000, the down payment would be $110,000.

Fortunately, saving up for a 20% down payment is not mandatory. Many mortgage options allow for a lower initial payment. Government-backed loans like VA loans require no down payment, while FHA loans need only a 3.5% down payment.

If you put down less than 20%, your lender may require you to take out private mortgage insurance. You can use our PMI calculator to estimate your monthly private mortgage insurance premium based on your credit score and down payment.

Several down payment assistance programs in Arizona make homeownership possible for many people. These programs help reduce the initial financial barrier, allowing more individuals to pursue their dream of owning a home. For those interested in exploring these options, the Arizona Industrial Development Authority offers the Home Plus program.

Finding the right location in Arizona involves several considerations. Start by evaluating the average house price in different areas to ensure it aligns with your budget. Consider proximity to family, friends, work or school, as these factors can greatly impact your daily life. Access to public transportation, parks, restaurants and shopping centers should also be assessed to ensure convenience and quality of life.

The cost of living is another critical factor in choosing your new home. According to the Missouri Economic Research and Information Center (MERIC), Arizona's cost of living index in the first quarter of 2024 was 110.5, which is higher than the national average of 100. When selecting the right location, consider the following expenses:

• Food
• Healthcare
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Check out the table below to see some cities in Arizona and their average home values based on recent data. You can also use our cost of living calculator to help you estimate how much you'll need to pay for all the essentials in different locations.

Source: Zillow

Working with a real estate agent can significantly speed up your house hunt in Arizona. Agents provide valuable advice, assist with paperwork and offer an expanded list of property options you might not access on your own. They can also recommend other service providers like title companies and inspectors to help you buy your home in Arizona.

When finding a real estate agent, make sure to do your due diligence and interview agents with experience in the neighborhoods you're interested in. Consider the following tips:

• Find someone compatible with your needs and personality
• Verify the agent's credentials, training and licensure
• Ensure they have in-depth knowledge of the area
• Shop around for agents and compare their rates

You can also use the license holder search tool from the Arizona Department of Real Estate to find or verify real estate agents in Arizona.

Navigating the homebuying process in Arizona involves finding a mortgage that aligns with your financial capabilities. You have several options, including conventional loans, jumbo loans, FHA loans, VA loans and USDA loans. Additionally, you can select from 10-year, 15-year, 20-year or 30-year terms and decide if a fixed-rate mortgage or an adjustable-rate mortgage (ARM) suits your needs. Choosing the right financing option can enhance your approval chances and lead to long-term savings.

Mortgage interest rates can fluctuate daily due to various factors such as the type of mortgage, the lender and the broader economy. While the interest rate refers to the cost of borrowing expressed as a percentage of the loan amount, the annual percentage rate (APR) provides a more comprehensive view by including additional costs such as fees and other charges. This makes APR a more accurate representation of the true cost of borrowing.

As of October 2024, the APR for a 30-year fixed conforming loan in Arizona stands at 5.84%, while the APR for a 30-year fixed rate FHA loan is 8.14%. To view the current mortgage rates in Arizona by mortgage type, please refer to the table below.

Getting pre-approved for a mortgage in Arizona is a strategic step in your home buying journey. This process helps you understand your budget, making your home search more focused and efficient. Lenders typically issue a mortgage pre-approval letter, which demonstrates your financial readiness to sellers. This letter is usually valid for 60 to 90 days, giving you a window to make offers with confidence.

To obtain a mortgage pre-approval, you need to submit several documents:

• Proof of income, such as pay stubs or tax returns
• Credit report
• Employment verification
• Identification, like a driver's license
• Bank statements

While mortgage pre-approval and prequalification might seem similar, they differ significantly. Prequalification is an initial assessment based on self-reported information, providing a rough estimate of what you might qualify for. Pre-approval, on the other hand, involves a thorough financial review, giving a more accurate picture of your borrowing capacity. Understanding these differences can help you better prepare for the home buying process.

Home inspections in Arizona are highly recommended as part of the homebuying process. They provide a comprehensive evaluation of a property's condition, helping buyers make informed decisions. Inspectors typically examine structural elements, electrical systems, plumbing, roofing and HVAC systems. The inspection report includes details about the condition of these systems and any recommended repairs. This information can help buyers understand the potential costs and necessary maintenance associated with the property.

For example, an inspection might reveal significant issues such as a faulty roof or outdated electrical systems. These findings could impact the home's appraisal, potentially lowering its market value. In some cases, buyers may choose to rescind their offer based on the inspection results, opting to avoid the additional costs and repairs. Understanding these possibilities can help buyers navigate the homebuying process more effectively.

Home inspections in Arizona are regulated by the Arizona State Board of Technical Registration. This ensures that home inspectors adhere to the Standards of Professional Practice for Arizona Home Inspectors. These standards outline the minimum requirements that inspectors must meet, providing a level of assurance for homebuyers.

If you're looking for a home inspector in Arizona, make sure they are licensed. Verify their credentials using the the Board's registered professional search tool. Additionally, consider checking online reviews and asking for references to gauge the inspector's reliability and past performance. These steps will help you find a qualified professional to assess your potential home purchase.

Home appraisals play a crucial role in the homebuying process in Arizona. They provide an unbiased assessment of a property's market value, ensuring that buyers pay a fair price and lenders have sufficient collateral for the mortgage. According to the 2023 Appraisal Survey from the National Association of Realtors (NAR), the median appraisal cost in Arizona was $500.

While both inspections and appraisals are integral to buying a home, they serve different purposes. A home inspection evaluates the condition of the property, identifying potential issues or necessary repairs. In contrast, a home appraisal determines the property's monetary value. Lenders require appraisals to confirm that the home's value justifies the loan amount, safeguarding their investment.

Closing marks the final step in buying a house in Arizona, where the transfer of ownership occurs, and you receive the keys. Your lender will provide a closing disclosure document three days before the official closing. This document details your loan terms, monthly payments and closing costs. Plan a final walk-through with your real estate agent close to closing day to ensure the property is in the expected condition.

During closing day, you'll review and complete various paperwork essential for finalizing your home purchase. Below are some of the documents you will need to sign:

• Final loan application: This document confirms the terms of your mortgage loan, ensuring they match what was initially agreed upon. It serves as a final check to verify all details are accurate before proceeding.
• Deed transfer: The deed transfer officially moves ownership of the property from the seller to you. Signing this document is a crucial step in becoming the legal owner of your new home.
• Promissory mortgage note: This note is a legal agreement where you promise to repay the mortgage. It outlines the terms of repayment, including interest rates and timelines.
• Homeowners insurance: homeowners insurance in Arizona protects your new home from potential risks like fire, theft and natural disasters. In Arizona, it is especially important to consider coverage for regional risks such as wildfires.

Understanding closing costs is essential for homebuyers, as these are the fees required to complete a real estate transaction. In Arizona, the average closing costs amount to $3,898, according to NAR. These costs typically include a variety of fees:

• Appraisal fee: This fee covers the cost of having a professional appraiser determine the value of the property.
• Title search and insurance fee: This fee ensures that the property's title is clear of any liens or legal issues and provides insurance for potential title disputes.
• Escrow deposit: This is a deposit made to cover future property taxes and insurance premiums.
• Prepaid costs: These are upfront payments for certain expenses like homeowner's insurance and property taxes.
• Other closing costs: These can include fees for credit reports, attorney services and document preparation.

If you are a first-time homebuyer, learning the different first-time homebuyer programs in Arizona can also help you achieve homeownership faster.

Buying a house in Arizona represents a significant financial commitment that could span years. We answered some frequently asked questions about buying a house in Arizona to kickstart your homebuyer journey.