Conventional Home Loans In Arizona

What are Conventional Home Loans?

A conventional mortgage loan is one that is not insured or guaranteed by the government. Private lenders, such as banks, credit unions, and mortgage companies, make these loans instead.

Unlike FHA and VA loans, which are government loans, conventional home loans frequently require higher interest rates and higher credit scores to qualify. They also have tighter credit standards.

Conventional loans are typically the preferable option for borrowers with excellent credit and a minimum 3% down payment, although a 20% down payment is generally required to avoid mortgage insurance. The private lender determines the loan parameters for a conventional mortgage, including the interest rate, down payment requirements, and eligibility requirements. These loans typically conform to the Federal Housing Finance Agency (FHFA) loan limits and satisfy the down payment and income requirements set by Fannie Mae and Freddie Mac.

Types of Conventional Loans

Conventional mortgages can either be conforming or non-conforming.

• Conforming Loans

Conforming loans are mortgages that meet the underwriting standards established by Fannie Mae and Freddie Mac, two U.S. government-sponsored enterprises. These loans comply with specific loan limits, adjusted annually to reflect national average home price variations. In 2023, the conforming loan limit is $726,200 for most of the United States, though it may be higher in more expensive regions.

Fannie Mae and Freddie Mac purchase conforming loans on the secondary mortgage market, thereby increasing liquidity, affordability, and stability in the mortgage market. Afterward, the acquired loans are converted into investment products or packaged as securities.

Conforming loans are attractive to borrowers with excellent credit because they typically offer lower interest rates than other mortgage types. They are regarded as standard in the mortgage industry and are preferred by lending institutions.

In addition to the borrower’s loan-to-value ratio (size of the down payment), debt-to-income ratio, credit score and history, and documentation requirements, the criteria for a conforming loan include the borrower’s loan-to-value ratio.

• Non-Conforming Loans

Non-conforming home loans are mortgages that do not satisfy the criteria established by government-sponsored enterprises (GSE) like Fannie Mae and Freddie Mac, which purchase most U.S. mortgages. This may occur for various reasons. It could be due to the loan amount exceeding the conforming loan limit, the borrower’s lack of acceptable credit, the unconventional nature of the funds’ use, or the collateral supporting it.

Non-conforming loans are frequently used when traditional loans do not satisfy the borrower’s needs, even though they are riskier and typically more expensive than conforming loans. Hard money lenders or private institutions can finance these loans, and a significant portion of real-estate loans are classified as non-conforming because either the borrower’s financial standing or the property type needs to comply with bank guidelines.

A substantial portion of non-conforming loans is either high-value mortgage loans or loans made to borrowers who typically would not qualify for a conventional-conforming loan. They are not packaged and resold, unlike traditional mortgage loans.

Qualification Requirements for a Conventional Loan

Generally speaking, conventional loans can be more challenging to qualify for than government-backed loans due to these requirements. However, they remain the most prevalent form of mortgage in the United States and are suitable for various buyers and property types.

To qualify for a conventional loan, specific requirements must be met. Among them are the following:

• Credit Score

A minimum credit score of 620 is required for a conventional loan. However, some lenders require a credit score of 640 or higher as a qualification condition.

• Down Payment

Conventional loans generally require a minimal down payment. Typically, 5% of the purchase price is required as a down payment. In certain instances, however, borrowers with outstanding credit may be required to put down as little as 3 percent. A larger down payment of 20% is typically recommended to avoid the need for mortgage insurance.

• Debt-to-Income (DTI) Ratio

The debt-to-income (DTI) ratio must not exceed 43 percent. This indicates the ratio between your monthly debt payments and your gross monthly income.

• Income and Employment

Lenders frequently look for a two-year track record of consistent income and employment. You must offer financial papers such as pay stubs and tax forms to validate your financial details.

• Loan Limits

Conventional conforming loans must adhere to the Federal Housing Finance Agency’s loan limits. The conforming loan limit for a single-family home in Arizona in 2023 is $726,200. This value was established by the Federal Housing Finance Agency (FHFA) and applied to all conventional loans sold to Fannie Mae.

Conforming loan limits for properties with three or more units are $929,850 for a two-unit property, $1,123,900 for a three-unit property, and $1,396,800 for a four-unit property.

These values apply to all Arizona counties, including Apache, Cochise, Coconino, Gila, Graham, Greenlee, La Paz, Maricopa, and Mohave.

Apply for a Conventional Loan in Arizona

Capital Home Mortgage has the expertise to navigate the complex mortgage market and assist homebuyers in securing a mortgage loan. Given the recent aggressive increase in mortgage interest rates, our expert advice can save thousands of dollars throughout their loan duration. Arizona homebuyers can benefit from our market expertise, competitive loan terms, and assistance navigating the state’s first-time homebuyer programs.

Call (480) 360-6650 to speak with our Arizona Home Loan Experts and get started on your path to homeownership!