Home Buying in Arizona

The landlocked, arid, Grand Canyon State, Arizona, is a popular destination for everyone from retirees to college students. Its warm, dry climate, Native American reservations, and spectacular natural beauty attract visitors and new residents alike.

Many people visit Arizona and decide to stay. The state has grown by about 1 percent per year, adding almost 900,000 residents in a decade. The $352,000 median home price makes Arizona more affordable than many states, but the market varies tremendously by location, with Phoenix, Sedona, and Scottsdale commanding higher prices than outlying areas.

Moving to a state as large as Arizona, which is over 300 miles wide and 300 miles north-to-south, involves many choices. Will you live near your employer, a major airport, a national park, or a college campus? The flavor of each city differs, like sprawling Phoenix and its metropolitan flair (it's in the top 10 cities by population in the country). Smaller cities have their own vibe, such as Tempe's college scene and nightlife, or Scottsdale's chill spa experiences that make it such a draw for retirees.

Maricopa County, where Phoenix and its suburbs are located, comprises over 60 percent of the state's population, concentrating traffic and housing in the south-central part of the state.

The median selling price for homes in Arizona is nearly $490,000, a figure that has gone up by almost 6 percent year after year. That's nearly identical to the median selling price for a home in the U.S. in general, from New York to California.

It's common for buyers to put a 10 to 20 percent down payment on a home in order to qualify for favorable mortgage terms. That takes significant effort, even when the state's median household income is over $72,000 and taxes are low.

A good income isn't enough to qualify for a mortgage; you need a good credit score above 600 as well. Your credit score affects the amount of your downpayment: if you have 20 percent or more of the purchase price in cash, your credit score can be a little lower.

It doesn't take long to repair a poor credit score and qualify for a mortgage. Paying off loans and making prompt payments is key. A credit score is based in almost equal parts on your payment history and your income-to-debt ratio.

Homes in the Phoenix area increase in value faster than the national average of 5 percent due to demand. As long as people continue to flood into the state and the inventory of available homes is low, it's a seller's market in Arizona.

Phoenix-area commuters plan to spend about 25 minutes getting to work, close to the national average. Given the convenient availability of services and retail outlets in the 14,500 square miles, 1.6 million population Phoenix metropolitan area, it's necessary to drill down on desired neighborhoods likely to have homes in your price range. For that, the advice of local friends and colleagues, as well as the professional experience of a good realtor (you can find recommendations and ratings online), are crucial.

If Phoenix and its sprawling suburbs aren't your cup of tea, you may find a suitable property in Laughlin, Prescott, Flagstaff, or Tucson.

The inventory of homes available to buy in Arizona is at an all-time low, which makes it tough to find one to purchase. Prices are high because properties increase in value as the demand grows. A majority of homeowners have mortgages with low interest rates, which is a disincentive to sell. New mortgages come with high interest rates, so potential buyers with flexibility may choose to rent temporarily instead.

A good real estate agent can help you sort through your options in Arizona, get you inside homes that most closely match your requirements and budget, and settle on the best option. Ask friends and colleagues for recommendations and read reviews from past clients to find the best professional realtor for you.

Realtors can point out the pros and cons of different structures, have research ready on the price history, and provide a ballpark figure of state and local property taxes. Your realtor will help tailor an offer, aid in hiring an inspector, potentially renegotiate the price if there are repairs necessary, and set up the closing process.

A new law regarding buyer's agents requires transparency about their fees. You'll need a contract that discloses their role and payment. Instead of splitting a 5-6 percent commission with the seller's agent, the buyer's agents must now negotiate their commission. It can be written into the purchase offer, making the commission part of the sale price.

The housing market in Arizona is highly competitive, so having a good credit score and significant cash for a down payment is key. Sellers may choose among offers from buyers and are likely to favor those who are prequalified for mortgages or who can pay cash for a property.

If you're looking at a $500,000 home to purchase and have $50,000 for a downpayment, your income (or income combined with a partner's) must be approximately $128,000 or above to qualify for a mortgage at a 7 percent interest rate. Your mortgage payment, which in this example is $36,000 per year, should not exceed one-third of your income.

A mortgage broker will present an array of options, but your longtime bank may do just as well – and provide a specialist to talk you through your choices.

Having cash saved smooths the process, as down payment and closing costs won't cause more stress. Your credit score, which qualifies you for good mortgage terms, depends heavily on your income-to-debt ratio and your history of on-time payments of debts.

Fixed-rate and adjustable-rate mortgages are based on the federal interest rate when the loan is made. Fixed rates are great if interest rates are low, but less desirable if rates are high (and will potentially drop). Adjustable-rate mortgages are riskier because the interest rate changes throughout the term of the loan. Jumbo mortgages allow buyers to borrow more than the federal housing authority limit on mortgages, about $766,000, for homes in areas of particularly high property values.

Government-backed mortgages include:

• FHA mortgages which are tailored for first-time buyers with down payments of less than 5 percent.
• If you choose a rural property, USDA loans are available to those with low incomes but good credit scores.
• Military veterans and their surviving spouses may choose a low-interest rate VA-backed loan, which is partially underwritten by the Veterans Administration. These mortgages do not require PMI and may be used multiple times by qualifying individuals.

Homeowner’s insurance and mortgage insurance may be required by your lender to protect their interest in the property. In Arizona, property insurance is not required for homeowners.

PMI, or mortgage insurance, is required by lenders when the buyer makes less than a 20 percent down payment. The cost of PMI varies according to your credit score but generally costs between $400 and $1,400 per month in addition to your mortgage payment.

When buying an Arizona home, consider the types of insurance you may need to ensure financial recovery from unexpected disasters. Damage from wind storms or wildfires may not be included unless specifically listed in the policy.

Structures other than the primary dwelling unit may require additional insurance. For example, a barn, fence, or garage lost in a home disaster is unlikely to be replaced by insurance unless specifically noted in the policy. Heirlooms and other personal possessions inside the home may not be covered by insurance unless an additional rider is written.

Until interest rates drop, finding a home is the biggest challenge prospective buyers in Arizona face. The number of new homes constructed in the country has declined in recent years, and high interest rates are discouraging residents from selling.

The average age of a home in Arizona is 30 years old. Despite nearly 14,000 new homes (single-family and multi-family) built in 2023, construction permits are down by nearly 24 percent. Finding a unit in a multi-family building, like a condo, may be easier than finding a free-standing single-family home.

In addition, contractors and tradesmen are in short supply across the country, making purchasing an inexpensive fixer-upper home a big challenge, if buyers choose that route.