- While it has some features that are similar to other states, Arizona has its own unique process for buying a home with a mortgage loan. Like many other states, Arizona requires an escrow agent, closing agent, or title-company representative to complete the transaction.
- In Arizona, a buyer’s funds and the purchase contract will be held by a neutral party. Once an escrow agent verifies that the seller and buyer have completed their roles, the new title is prepared.
- When the new title is ready, the escrow company will release the funds and the listing agent will give the house keys to the new owner.
- Certain environmental requirements are needed in Arizona, including termite inspections.
Buying a Home in Arizona: The Step-by-Step Process
Phase 1: House Disclosures and Inspections
Once a buyer is in contract, there are certain tasks that need to be completed. These can often be done at the same time as Phase 2.
- First, an offer will be accepted by the current owner. With a contract signed, the escrow process will start.
- Earnest money, which is a deposit, will be placed with either the seller’s real estate broker, an escrow agent, or an attorney. This money will never go directly to the seller. In many cases, an escrow company is simply a separate division of the title company.
- When the deposit has been made, the buyer will review and sign any disclosures, which are usually completed as an addendum to the purchase contract. Depending on the property itself, the disclosure can include previous remodeling or repairs, possible hazards, or flaws in the home. A property disclosure statement will usually be provided by the seller, and this will come to the buyer with the contract or during the inspections.
- The buyer can also choose to perform inspections on the property, which is usually agreed upon as part of the contract. It’s important to note at this point that all issues regarding inspections and negotiations must be completed in writing to ensure proper documentation and accuracy. The inspection period in Arizona is laid out in the contract, and will include a predetermined number of days for the buyer to perform any inspections they wish. In Arizona, this step will include a basic inspection by a contractor as well as a termite inspection, but this will vary depending on the property itself.
- Depending on how the inspections go, the buyer at this point has the option to completely walk away from the deal or accept the conditions of the purchase. They could, however, request the seller make repairs before the sale, or they could ask for credits. They could also request a reduction in the sale price because of documented flaws. At this point, the sellers will have around five days to respond. (The time period will vary and will be defined in the contract.) They can either agree to all of the buyer’s requests or offer a negotiated solution. If the seller desires, they could also reject the requests of the buyer and refuse to meet their demands. Once the response is made, the buyer can continue with negotiations or accept the seller’s position. They also have the option to end the purchase and move on. Once again, the potential buyer will have a certain amount of days to respond, but the most common timeframe is around five days. If the buyer refuses the seller’s position within the timeframe, they can end the transaction and recover the money that they placed in escrow.
Phase 2: Getting a Mortgage in Arizona
You can wait on this step until all the inspections and negotiations have been completed, but it is possible to start the mortgage process immediately once the initial contract has been made. The mortgage process can often be the most complex and frustrating, leading to a lot of stress for some people. However, if you start early and prepare the right documents, the mortgage process in Arizona can be quite simple.
- First, the buyer will submit a loan application to a lender. This can be done either directly or through a mortgage broker. (Before this occurs, it’s likely the buyer has gone through pre-qualification and pre-approval steps, which are usually completed before house shopping.)
- Next, the lender will send a document called the “Good Faith Estimate” to the buyer. Also called a GFE, this document outlines the likely closing costs, which will probably differ slightly from the final costs.
- After the GFE, the purchaser will need to send certain financial disclosures to their lending agent. This will vary depending on the specific loan and the situation, but some of the most typical documents include:
– Bank statements from several previous months. Should include each bank account that the borrower owns.
– Information regarding current debts. This can include current lines of credit, loans, and other financial obligations. If renting, it should also include rent payments.
– Tax returns for up to two years. This will be submitted through an authorization using specific IRS forms. (Generally Form 4506-T.)
– For each borrower’s employers, recent pay stubs and contact information will need to be provided. The amount of pay stubs will depend on the type of loan.
– Any other information that relates to the borrower’s financial situation. For example, this can include marriage licenses, divorce settlements, child support, liens, bankruptcies, and court judgements. Essentially, anything that impacts the money you have needs to be included in the step.
– Information explaining credit inquiries.
– Verification of any large deposits that are not considered regular income, such as gifts. A large gift can be similar to a personal loan, as far as lenders are concerned. Therefore, you will likely need to provide a gift letter, which outlines the nature of the large deposit. The letter needs to include a lot of information, including a statement that the money is a gift and not a loan. The lender can also request itemized deposit slips depending on the amount. Requirements for this step can vary based on the situation, especially the size of the loan compared to the size of the borrower’s income. When seeking a loan, ask your lender if this is required so you can prepare the documents.
– Finally, the lender may request repeat information to verify some of the documents that we outlined above. Life can be unpredictable, so lenders may ask for more than one copy or verification source in regards to the same information. For example, your lender may need duplicates of pay stubs, rent receipts, or bank statements. If there is any significant change in these documents, the lender may need to reassess your financial eligibility for the loan.
- Once all the right information has been collected and verified, the lender will make a decision. If approved, you will receive a loan commission letter, which states their willingness to fund the mortgage. There may, however, be some conditions. These conditions usually include an appraisal, which allows the lender to verify the value of the property you are buying. It can also include, depending on the situation, a check into any material change in your finances or changes to the property.
- Within a certain number of days, the loan contingency will need to be removed by the buyer. This will need to be done within a certain timeframe before the closing date, which is often called the “loan contingency date.” By this time, the buyer must either get a commitment from the lender or tell the seller that they are unable to secure the loan.
- When ready, an appraisal will be ordered by the lender or mortgage broker. In Arizona, this is done through a directory of appraisers. The lender or broker cannot choose a specific appraiser, but they can reject an appraiser or request a different person; just not a specific person. If this appraisal is lower than the purchase price, a lender can decline the loan unless a change is made. Contracts usually have an appraisal contingency that allows for cancellation at this point without a penalty.
- Typically, the lender will request a title commitment to the the title company. When this request is received, the title company will examine the title for quality, as well as information regarding the property survey. (If there is no survey, one will need to be performed.) If all goes well, the company will create a title commitment that certifies the title is clear of issues and is ready for sale. If needed, title insurance can be arranged at this step.
- The new owner of the property will now need to purchase homeowner’s insurance. This step may be skipped if the property already has insurance, which may be the case if there is a homeowner’s association, for example. Proof of sufficient insurance will need to be provided to the lender.
- There may also be a requirement for hazard insurance for some houses in Arizona. This will financially protect the home from fire or storms. In certain areas of Arizona, flood insurance may be required.
The total mortgage process, even when handled by a high-quality mortgage agent, can be long and meticulous. In some cases, it can even seem arbitrary, focusing on details that, to the buyer, seem insignificant. However, this is a critical part of the buying process, so you should prepare these documents as soon as possible. At the very least, you should determine how you get these documents. If possible, avoid any changes to employment or your credit score until your mortgage transaction is complete; any changes can create problems for the loan process. Avoid switching employers, even if you can secure a higher income. If possible, delay the change until your entire mortgage-loan process is complete. You should also not lease or finance a car while going through the loan process, and don’t open new lines or credit, as a change in your credit profile could cause the entire process to start from the beginning.
Phase 3: Closing the Arizona Purchase
Compared to the previous phases, the closing process is usually fast and simple. While it can take a week, it could be completed in a couple of days. Because Arizona does not require an attorney review, the transaction rarely requires all parties to sit at the same table at the same time.
Arizona is an escrow state, which means the following steps need to be completed:
- The mortgage lender will send the final documents to the escrow agent and a closing date is scheduled.
- At the office of either the escrow agent, closing agent, or title company, the closing will begin. In most cases, the seller will sign their documents before the buyer.
- The buyer then signs all of their documents, including loan documents.
- The buyer will pay the remaining funds for the down payment and closing costs to the escrow agent, closing agent, or title company. (To speed the process, this step can actually be done days in advance.)
- The deed will then be recorded with the appropriate city or county.
- The buyer gets the keys to the house and officially take possession of their Arizona property!
Remember, this is a general-information guide and should not be taken as legal advice. Laws are subject to change, so always speak with a qualified real estate professional before making any decisions.
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