Home Purchase Loans In Phoenix

Home buyers in Phoenix, Arizona, expect a competitive atmosphere in the present housing market. The median sale price of a property in Phoenix increased by 2.3% yearly. Homes in Phoenix typically receive three offers and sell in 35 days or less. Despite a slower growth rate than last year’s 24.3%, the market remains active with a comparatively low inventory. However, prospective purchasers should remember that rising interest rates may impact affordability.

Purchase Loan Programs in Phoenix

Phoenix home buyers have a plethora of mortgage programs to choose from. The most prevalent among them are the following:

• FHA Home Loans

An FHA home loan, a product of the Federal Housing Administration (FHA), is a type of mortgage meant to assist those who may not be eligible for conventional mortgages. These loans, introduced in 1934, are prevalent among first-time homebuyers due to their reduced minimum down payment and credit score requirements. The FHA doesn’t give out loans; instead, it insures them, lowering the risk for lenders and allowing them to offer more competitive terms.

Applicants must meet specific requirements to be qualified for an FHA loan in Phoenix, Arizona. First and foremost, they must have a consistent employment history or have worked for the same employer for the previous two years. Maximum financing with a 3.5% down payment typically requires a minimum credit score of 580. A 10% down payment is usually required for borrowers with credit scores between 500 and 579. Furthermore, the home must be the borrower’s primary residence and meet the minimum safety, security, and structural integrity standards. The loan amount must also be within the area’s FHA loan limits, which vary by county. It is important to note that these standards are subject to change and may vary slightly depending on the lender’s guidelines.

The 2023 FHA loan limits in Phoenix, Maricopa County, are $530,150 for a single-family residence, $678,700 for a duplex, $820,350 for a triplex, and $1,019,550 for a quadplex.

• Conventional Home Loans

A conventional mortgage is a loan not guaranteed or insured by the government. Private lenders such as banks, credit unions, and mortgage companies often make these loans available. Conventional mortgages are preferred because of their flexibility in loan amounts, terms, and interest rates. They typically require higher credit scores and a larger down payment than government-insured loans such as FHA or VA loans.

Understanding mortgage alternatives in Phoenix requires distinguishing between conventional conforming and non-conforming loans. Fannie Mae and Freddie Mac, two government-sponsored enterprises that buy and securitize mortgages, set lending restrictions and other criteria for conventional conforming loans. The conforming loan limit in Phoenix, Maricopa County, is determined annually and is influenced by the area’s median home price. Loans that fall under this limit are known as conforming loans, and they often have lower interest rates and less strict qualification requirements.

The 2023 conforming loan limits in Phoenix, Maricopa County, are $726,200 for a one-unit home, $929,850 for a duplex, $1,123,900 for a triplex, and $1,396,800 for a four-plex.

Conventional non-conforming loans, on the other hand, do not meet these requirements. The jumbo loan, which exceeds the conforming loan limits, is the most common type of non-conforming loan. Properties priced beyond the stipulated limit in Phoenix would require a jumbo loan for financing. Because of their enormous size, these loans are inherently riskier for lenders, frequently necessitating stricter credit standards, higher down payments, and more rigorous income verification methods. Non-conforming loans are especially useful in high-cost housing markets or when buying luxury properties that surpass regular credit limitations.

• VA Home Loans

A VA mortgage in Phoenix, Arizona, is a financing program guaranteed by the United States Department of Veterans Affairs designed to assist eligible military service members, veterans, and their spouses in purchasing a property. These loans are renowned for their favorable terms: they often do not demand a down payment, do not require private mortgage insurance (PMI), offer competitive interest rates, and may have lower closing expenses. Furthermore, the VA guarantee reduces lender risk, allowing them to provide these advantages. VA mortgages can be used to purchase, develop, repair, keep, or adapt a house for personal occupancy.

The length and nature of service determine eligibility for a VA home loan. Individuals who have served 90 consecutive days of active service during wartime or 181 days of active service during peacetime, members of the National Guard or Reserves who have served for at least six years, and spouses of service members who have died in the line of duty or as a result of a service-related disability are all eligible for this program. The borrower must obtain a Certificate of Eligibility (COE), which determines specific eligibility. It’s crucial to note that while the VA establishes eligibility parameters, actual lending is done by commercial lenders, who may have additional restrictions or criteria. These loans benefit veterans and active service members seeking housing in Phoenix and other regions without the traditional financial obstacles in standard mortgage settings.

• USDA Home Loans

A USDA home loan in Phoenix is a mortgage program backed by the United States Department of Agriculture (USDA). These USDA Rural Development loans aim to support rural and suburban homebuyers who meet specific income standards. USDA loans are well-known for providing 100% financing (no down payment), lower mortgage insurance payments, and lower mortgage rates than the market. These characteristics make them an appealing alternative for qualified borrowers in qualifying areas near Phoenix, which may include suburban or rural areas.

USDA home loans are classified into two types: USDA Direct Loans and USDA Guaranteed Loans, with each catering to a particular income level and offering different terms:

• • • USDA Direct Loans

These are directly funded by the USDA and are designed for applicants with low and very low incomes. Income eligibility for these loans is often less than 50% to 80% of the area’s median income. The most critical component of the USDA Direct Loan program is the potential of interest rate subsidies, which can cut rates to as low as 1% in certain instances. This program is especially advantageous for people who may not be able to qualify for conventional mortgages due to their low income.

• • • USDA Guaranteed Loans

These loans are more popular and are made available by private lenders while the USDA guarantees them. This guarantee lowers the risk for lenders, allowing them to provide loans to people who might not qualify for traditional finance. USDA Guaranteed loans have higher income limits, typically up to 115% of the area’s median income. While these loans do not give the interest rate subsidies seen in the Direct Loan program, they offer substantial advantages such as no down payment and lower mortgage insurance payments.

Both loan types play an important role in promoting homeownership in less densely populated areas of Phoenix and its outskirts by providing feasible mortgage options to a population segment that would otherwise encounter difficulties obtaining home financing through traditional channels.

• Jumbo Loans

In Phoenix, Arizona, a jumbo loan is a type of mortgage that exceeds the conforming loan restrictions imposed by the Federal Housing Finance Agency (FHFA). Jumbo loans are frequently used to finance luxury residences or homes in competitive real estate markets in regions such as Phoenix, where real estate values can be high. Non-conforming loans exceed the maximum amount Fannie Mae and Freddie Mac will purchase or guarantee. The jumbo loan threshold varies by location and is modified yearly; in most parts of the country, any loan that exceeds the conforming limit is categorized as a jumbo loan.

A jumbo mortgage typically requires a higher credit score, often 700 or higher, a lower debt-to-income ratio (usually less than 43%), and a larger down payment, generally around 20% of the home’s purchase price. Lenders also want extensive documentation of income and assets to ensure financial stability, such as tax returns and bank statements. To offset the lender’s risk associated with the more significant loan amount, borrowers may need to undergo several property appraisals to validate the home’s value and have sufficient cash reserves, enough to cover several months of mortgage payments.

• Construction Loans

A construction loan is a short-term loan used to fund the construction of a house or similar real estate project. Unlike standard mortgages, which provide a single sum for the purchase of an existing property, construction loans provide funding in increments during construction. During the construction phase, these loans are generally interest-only and are converted to a regular mortgage or paid off altogether when the project is completed. Construction loans are essential in Phoenix, Arizona, where new housing complexes and custom homes are widespread, for people wishing to create a home tailored to their tastes.

Construction loans are divided into two types: one-time close loans and two-time close loans.

• • • One-Time Close Construction Loans

Often known as “construction-to-permanent” loans, these loans combine the construction and permanent mortgage into a single loan. This means that the borrower has to go through one application process and one closing, greatly simplifying the financing process. Upon completion of the construction, the loan automatically converts to a regular mortgage, eliminating the need for a second closing. This option is convenient and can save on closing expenses, but it may come with higher interest rates and fewer options in terms of lenders and loan conditions.

• • • Two-Time Close Construction Loans

On the other hand, a two-time close construction loan entails two different loans and two separate closings. The initial loan is only for the construction phase and is usually for a year. When the structure is finished, the borrower must apply for a second mortgage loan to pay off the construction loan. This technique allows you greater freedom to select a mortgage provider and potentially get more advantageous permanent loan conditions. However, it entails two sets of closing costs and the possibility that changing market conditions will alter the terms of the second loan.

The decision between a one-time close construction loan and a two-time close construction loan in Phoenix is based on the borrower’s preference for convenience vs. flexibility and the potential financial implications of each option.

• Non-Qualified Mortgage Loans

A non-qualified mortgage (non-QM loan) is a home loan that does not meet the Consumer Financial Protection Bureau’s (CFPB) rigorous criteria for qualified mortgages. Non-QM loans, intended to serve a broader spectrum of borrowers, are especially beneficial to people with unusual income streams, higher debt-to-income ratios, or poor credit histories. Non-QM loans provide alternative financing options for self-employed persons, real estate investors, or others with unique financial situations who may not qualify for standard mortgages in various real estate markets such as Phoenix, Arizona.

Non-QM loans have more flexible income verification processes and accept alternative documents, such as bank statements from self-employed borrowers. They frequently allow higher debt-to-income ratios than the usual 43% requirement for qualifying mortgages, allowing those with higher debt levels more flexibility. Some non-QM loans provide interest-only payment alternatives, allowing borrowers to pay only the interest for a set time. Credit standards are often less stringent, making these loans available to persons with poor credit. Non-QM loans can fund non-standard properties such as investment and commercial real estate. While these loans offer greater flexibility and accessibility, they usually come with higher interest rates and costs to compensate lenders for the additional risk. As such, they are an essential part of the Phoenix housing market, allowing a broader range of purchasers to pursue homeownership, but with careful assessment of their conditions and potential risks.

Apply for a Home Purchase Loan in Phoenix

Capital Home Mortgage is a well-known mortgage lender and servicer in Arizona. We offer a wide selection of mortgage solutions to accommodate our clients’ needs. Our team of mortgage specialists can assist you in selecting the ideal loan program for your particular needs and financial circumstances, thanks to our years of expertise and extensive understanding of the industry. Our Loan Professionals give clients the knowledge, support, and flexibility they need to select the ideal mortgage plan because every loan is unique.  

Call (480) 360-6650 to speak with a Phoenix Home Loan Specialist.