Home Purchase Loans In Arizona

Arizona buyers should expect a consistently developing housing market with rising home values in 2023. This upward trend is predicted to continue. The Arizona housing market in 2023 looks good, with continuous growth; nevertheless, prospective house buyers should expect high prices, rising mortgage rates, and a competitive market due to limited inventory.

Purchase Loan Programs in Arizona

Home buyers in Arizona have various mortgage loan programs available for their choosing. Here are the most common home loan programs available:

• Conventional Loans

A conventional loan is a mortgage not guaranteed by a government entity. These loans are among the most popular types of home loans in the United States, accounting for more than 80% of home loans closed in 2021. These loans are available in Arizona as well as across the country.

Conventional loans are classified into two types: conforming loans and non-conforming loans. Conforming loans adhere to the loan restrictions established by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that supply mortgage market liquidity. Non-conforming loans, on the other hand, do not fall within these parameters. A prime example of this is a jumbo loan.

Regarding eligibility, most conventional loans adhere to the loan limits established by the Federal Housing Finance Agency and adhere to the minimum credit score and down payment requirements set by Fannie Mae and Freddie Mac.

The requirements for a Conventional Loan in Arizona include the following:

• Property:

The property could either be a primary residence, a second home, or an investment property.

• Down Payment:

The typical down payment required for a conventional loan is 3 – 5% of the sales price, depending on the borrower’s credit score. However, mortgage insurance is waived if the borrower comes up with a down payment of 20% or more.

• Credit Score:

Borrowers should have a minimum credit score of 620 to be eligible for a conventional loan.

• Loan-to-Value (LTV):

For conventional mortgages, the maximum financing LTV ratio is typically between 80% and 97% of the home’s appraised value or selling price, whichever is lower.

• Loan Amount:

Arizona’s 2023 conforming loan limits is $726,200 for a single-family home, $929,850 for a duplex, $1,123,900 for a triplex, and $1m396,800 for a quadplex, respectively.

Finally, applicants should remember that unlike VA, FHA, and USDA loans, the federal government does not insure or guarantee these loans. This means that the lender undertakes the risk of loss if the borrower defaults. As a result, the interest rates on these loans may be marginally higher than those on government-backed loans.

• FHA Loans

An Arizona FHA loan is a mortgage insured by the Federal Housing Administration (FHA), a government agency within the U.S. Department of Housing and Urban Development (HUD). The FHA-approved lenders provide these loans. They were designed to enable lower-income Americans to borrow money to purchase a home they might not be able to afford otherwise.

The FHA insurance safeguards lenders from losses. This means that the FHA will compensate the lender if the borrower defaults on the loan. This guarantee encourages lenders to lend to borrowers failing to meet the conventional loan criteria.

FHA loans differ from conventional loans in that the property must be occupied by the buyer for a minimum of one year. This condition makes these loans more suitable for first-time buyers than real estate investors.

While specific requirements may vary, the following are commonly required for an FHA loan:

• Credit Score:

FHA loans require a 580 minimum credit score to qualify for the 3.5% down payment advantage.

• Down Payment:

The typical down payment for an FHA loan is 3.5% of the sales price. However, borrowers with credit scores between 500 – 579 may still be eligible with a minimum 10% down payment, and certain restrictions may apply.

The down payment may come as a “gift” from relatives, employers, or a charitable institution.

• Debt-to-Income (DTI) Ratio:

This ratio compares the amount of money the borrower earns to the amount owed. The standard DTI ratio on FHA loans is less than 45%. However, a higher DTI ratio is allowed with compensating factors. 

• Property Standards:

The property being purchased must meet specific safety, security, and structural integrity standards. If the house does not satisfy these requirements, repairs must be done before the loan is approved.

• Primary Residence:

FHA loans are intended to be a borrower’s primary residence. As previously stated, the property must be the borrower’s primary residence for at least one year.

• Loan Limits:

Each county dictates the FHA loan limits in Arizona. Arizona’s 2023 FHA Loan Limits for single-family homes are $472,030, increasing to $530,150 in high-cost counties. The maximum allowed for a four-plex is $1,019,550.

Please note that these requirements may differ based on the borrower’s financial situation. It is always a good idea to consult with our home loan specialist to understand the most current requirements and how they pertain to your situation.

• VA Loans

VA mortgages are a benefit offered by the U.S. Department of Veterans Affairs to active-duty and veteran military service members and certain surviving spouses. The VA guarantees a portion of the loan, allowing private lenders such as banks and mortgage companies to offer more favorable terms. The majority of the state of Arizona is eligible for VA home financing, including cities such as Phoenix, Tucson, Mesa, Chandler, and Scottsdale.

Arizona VA loans offer several advantages, including 100% financing with full VA entitlement, no monthly mortgage insurance, seller contribution to closing costs allowed, no prepayment penalties, and options for both fixed-rate and adjustable-rate loan terms. Nearly 90% of VA-backed loans do not require a down payment.

You must have satisfactory credit, sufficient income, and a valid Certificate of Eligibility (COE) to qualify for a VA-guaranteed home loan. The residence must be for your personal use. If you did not receive a dishonorable discharge and meet the minimum active-duty service requirement based on when you served, you are eligible to receive a Certificate of Eligibility (COE). You have satisfied the minimum active-duty service requirements if you have served for at least 90 consecutive days (without interruption). Other eligibility requirements include meeting the length-of-service requirements, generally 90 days in wartime and 181 days in peacetime, or completing 90 days of active-duty service or six years of creditable service in the Selected Reserve or National Guard.

Remember that even though VA-backed loans offer more favorable terms, applicants must still be approved by a qualified lender based on their particular credit and income requirements. And in the case of VA home loans in Arizona, certain lenders, such as Capital Home Mortgage, can help you qualify for a VA loan in as little as 30 days.

• USDA Loans

USDA house loans, also known as the Section 502 Direct Loan Program, are designed to help low- and very-low-income applicants afford safe, sanitary, and secure housing in rural areas. These loans provide payment assistance to applicants to improve their repayment capabilities, and their adjusted household income determines the amount of assistance.

The Section 502 Guaranteed Loan Program offers approved lenders a 90% loan note guarantee to reduce the risk of extending 100% loans to eligible rural homebuyers. Applicants for this program must meet income eligibility (no more than 115% of the median household income) and agree to occupy the dwelling as their primary residence personally.

A property must meet the USDA’s requirements to qualify for a USDA loan, which primarily center on the rural area classification, occupancy, and physical condition of the residence. The USDA has created an interactive map to assist potential purchasers in determining the eligibility status of a home.

The average household income limit in Arizona for a family of 1-4 is $103,500, and the limit for households of 5 or more can be as high as $136,600. USDA loans in Arizona have several advantages, including no down payment, flexible credit standards, and reasonable fixed interest rates.

Applicants for a USDA loan must satisfy specific eligibility requirements. Among other requirements, they must have U.S. citizenship or be a legal permanent resident, demonstrate creditworthiness (typically with a credit score of at least 640), provide evidence of a stable and reliable income, and demonstrate a resolve to repay the mortgage. In addition, the applicant’s adjusted household income must be at or below 115% of the area’s median income, and the property must serve as the applicant’s primary residence.

• Jumbo Loans

A jumbo loan in Arizona is a mortgage used to finance properties exceeding the Federal Housing Finance Agency’s lending limits. They are frequently used for luxury residences and properties in expensive housing markets. They are available when the required loan amount exceeds the conforming loan limit. In 2023, the conforming loan limit in Arizona and most counties will be $726,200.

Jumbo loans are riskier for lenders because Fannie Mae and Freddie Mac cannot guarantee them, meaning the lender is not protected against default losses. Typically, they are available with either a fixed or adjustable interest rate and come with various terms.

To qualify for a jumbo loan, borrowers must typically satisfy more stringent requirements due to the higher loan amount and associated risk for lenders. They need a credit score of 700 or higher and an adequate reserve amount. This means borrowers must set aside sufficient funds to cover a specified number of monthly mortgage payments (principal, interest, taxes, insurance, and assessments) following the loan’s closing. The typical reserve requirement for a jumbo loan is 6 to 12 months.

Apply for a Home Purchase Loan in Arizona

Capital Home Mortgage offers many advantages to Arizona home buyers. First, Capital Home Mortgage can help buyers navigate a complex mortgage market with historically high mortgage rates and find the best interest rates and terms, potentially saving them thousands over the life of a loan. Their customized home purchase loan products include a loan pre-approval, detailed options based on unique criteria, and help for comparing interest rates and terms. Capital Home Mortgage can also help navigate Arizona’s high closing costs. Capital Home Mortgage offers experienced guidance and help to Arizona home buyers.

Call (480) 360-6650 to speak with one of our Arizona Home Loan Experts about your home loan needs. You’ll be glad you did!