Dramatic landscapes, mild winters and a relatively low cost of living are drawing an increasingly diverse population to the state of Arizona, including new parents and retirees. In fact, it’s one of the 10 fastest-growing states in the country. If you’re thinking about moving to the Grand Canyon State, we suggest cashing in on the social and economic benefits of homeownership. Even if the relatively average home values and mortgage rates seem too high, these first-time home buyer programs of the federal and Arizona state governments are available to help. If you need help making the choice, consider enlisting the help of a professional financial advisor, which can be easily found via SmartAsset’s financial advisor matching tool.
Federal First-Time Home Buyer ProgramsFHA Loans Pros – Low down payment
– Flexible credit approval Cons – Bigger down payment needed for those with a weaker credit score Eligibility – Down payment of at least 3.5% of the home’s purchase price
– Credit score of 500 or above Best For – Anyone without enough savings to cover a typical down payment
FHA loans are backed by the U.S. Federal Housing Administration and available from a range of outside lenders. These loans are a great option for anyone that doesn’t have the upfront funds usually needed to purchase a home. While conventional loans require a 20% down payment, you’ll only need to put down 3.5% of your home’s value.
You must have a credit score of at least 580 on the FICO® scale to uncover that 3.5% rate, though. If your score falls anywhere between 500 and 580, you’ll need to make a down payment closer to 10%. At just half the size of a usual mortgage down payment, that’s still a great deal. In fact, even with the credit score requirement, an FHA loan is one of the easiest federal programs to qualify for.
VA Loans Pros – No down payment
– No private mortgage insurance
– Low closing costs Cons – Long application process
– Requires payment of into the VA fund Eligibility – Must be a current or former military member, spouse, or other beneficiary
– Credit score of 620 or above Best For – Veterans earning a low monthly income
The Department of Veterans Affairs insures VA loans to help military families get a mortgage. Since many veterans tend not to have adequate income or savings to afford a typical 20% down payment after completing their service, VA loans do not require any sort of down payment.
Plus, since the government will back part of your risk, you won’t have to get the usually obligatory and costly private mortgage insurance (PMI). As an added bonus, the VA usually arranges for lower-than-usual closing costs.
In most situations, you need a FICO® credit score of at least 620 to secure a VA loan. You also need to pay a VA fund fee, which ranges anywhere from 1.25% to 2.4% of your home’s value depending on the size of your down payment (should you choose to make one).
USDA Loans Pros – No down payment
– Flexible credit approval Cons – Only available to those that cannot secure a conventional mortgage Eligibility – Income lower than 115% of the adjusted U.S. median
– Home must be in a qualified area Best For – Low- to moderate-income individuals looking to live in a rural or semi-rural area
Officially known as a “Section 502 Single Family Housing Guaranteed Loan Program,” the United States Department of Agriculture (USDA) started backing USDA mortgages to attract new home buyers to rural and semi-rural places throughout the country. In most cases, you won’t need to pay any down payment to get a USDA mortgage.
Applicants with a lower credit score may need to pay a down payment, but they will only be around 10% of your home’s value. That’s still a considerable discount from the typical 20% down payment requirement. To qualify, home buyers must earn less than 115% of the current U.S. median income. You will also have to prove that you have been unable to get a conventional loan.
Good Neighbor Next Door Program Pros – Flat 50% discount on the home’s value Cons – Only available to certain people and in certain areas Eligibility – Must be a police officer, firefighter, emergency medical technician, or pre-K through grade 12 teacher
– Must live in the home for at least three years after purchase Best For – Teachers and emergency personnel without adequate savings for a home purchase
The U.S. Department of Housing and Urban Development (HUD) sponsors the Good Neighbor Next Door Program, which is actually more like a discount than a loan. It grants certain public servants 50% off the purchase price of a home. Participants are encouraged to get a conventional, VA, or FHA mortgage or pay cash for the home.
To qualify for a Good Neighbor Next Door discount, the home must be located in a “Revitalization Area.” Applicants must also agree to live in the home for at least three years. So long as you do, you can sell the home and hold onto any equity you’ve acquired.
Fannie Mae/Freddie Mac Pros – Low down payment
– Flexible credit approval
– Multiple loan styles Cons – Higher interest rates than other federal programs Eligibility – Income requirements dependent on the home’s location Best For – Anyone that doesn’t qualify for other federal mortgage programs
The federal government created Freddie Mac and Fannie Mae mortgage lenders.While technically two different entities, they offer very similar benefits suitable for anyone buying a first home.
The HomeReady® loan from Fannie Mae requires a down payment of 3%. You must have a FICO® credit score of at least 620 and makes an income at or near the U.S. median to qualify. With a HomeReady® loan, you must also get private mortgage insurance but once you’ve accrued 20% equity in your new home, you can cancel it.
Home Possible® mortgages from Freddie Mac comes in two forms: “Home Possible: 95% LTV” and “Home Possible Advantage: 97% LTV.” LTV stands for loan-to-value, so required down payments will be 5% and 3%, respectively. These loans can be for 15 or 30 years with 5/5, 5/1, 7/1, or 10/1 adjustable-rate terms. Like HomeReady loans, Home Possible mortgages carry the cancelable private mortgage insurance benefit. Best of all, you don’t need a credit history to qualify. The Home Possible Advantage mortgage is much the same, but it has credit requirements and only offers fixed-rate terms.
NADL Pros – No down payment
– Flexible credit approval
– No private mortgage insurance
– Low closing costs Cons – Only available to certain people in certain areas Eligibility – Home must be in a qualified area Best For – Native American veterans without enough savings to cover a typical down payment
The Department of Veteran Affairs also backs Native American Direct Loans (NADL). They do not require any down payment and carry a set interest rate. Currently, the interest rate is 4.5%, but it changes based on market and Prime Rate fluctuations.
NADLs don’t require high credit score minimums or the purchase of private mortgage insurance, which is a perk that extends from normal VA loans. Most NADLs also come with significantly lowered closing costs.
Arizona First-Time Home Buyer Programs
The Arizona state government offers mortgages, down payment assistance, closing cost assistance and other benefits through the Arizona Industrial Development Authority (AzIDA) and Arizona Department of Housing (ADOH) mortgage programs. For both products, home buyers apply through a network of state-approved lenders. Borrowers must meet income and credit score requirements and complete a home buyer education course to qualify. The home must also fall within specified purchase price limits and be the borrower’s primary residence.
Home Plus Pros – Deferred, no-interest second mortgage of up to 5% of the first mortgage
– Lowered private mortgage insurance costs Cons – Strict eligibility requirements Eligibility – Credit score of 640 or above
– Debt-to-income ratio below 50%
– Income below $99,170
– Purchase price below $396,680
– Must complete homeownership education course Best For – Low- to moderate-income individuals without enough savings to cover the upfront costs of homeownership
The AzIDA Home Plus program combines 30-year fixed-rate mortgages with upfront assistance. Creditworthy borrowers can receive up to 5% of the mortgage amount in the form of a no-interest second loan, which can be used toward a down payment, closing costs or both.
To make the loan even more helpful, you don’t need to repay the second mortgage for at least three years, or until you sell or refinance the home. It’s forgiven monthly at a rate of 1/36 over the life of the loan. Perhaps best of all, Home Plus mortgages awarded through Fannie Mae and Freddie Mac come with lowered mortgage insurance premiums.
Pathway to Purchase Down Payment Assistance Pros – Forgivable, no-interest second mortgage of up to 10% of the home’s purchase price Cons – Only available for certain types of homes and in certain areas Eligibility – Home must be in qualified area
– Must have a Freddie Mac Advantage mortgage
– Income below $92,984
– Purchase price below $371,936
– Must complete homeownership education course Best For – Low- to moderate-income individuals willing to live in areas hit especially hard by the housing crisis
The Arizona Department of Housing (ADOH) and Arizona Home Foreclosure Prevention Funding Corporation (AHFPFC) have teamed up with the Pathway to Purchase (P2P) Down Payment Assistance Program. Like the Home Plus Program, it also combines 30-year, fixed-rate mortgages with upfront assistance.
P2P awards secondary loans to help home buyers using a Freddie Mac Advantage mortgage buy a residence in the Arizona cities that have been hardest-hit by foreclosures, including Bull Head City, Casa Grande, Glendale, Green Valley, Kingman, Phoenix, Rio Rico, Sahuarita, Sierra Vista, Tucson, Vail, Yuma.
The second loan provides up to 10% of a home’s purchase price, with a maximum limit of $20,000. It’s a no-interest loan with no required monthly payments that will be forgiven after five years. In addition to target zones and purchase price limits, the home cannot be newly constructed.
Tips for a New Mortgage
- Just because you qualify for a first-time buyer program from the federal or Arizona state government doesn’t mean that you should apply for it. You should do as much research you can about the lenders, interest rates and down payment stipulations for every option.
- Determine how much house you can afford before you start looking. It’s important to keep your wallet and expectations in sync.
- There’s no way around it: buying a home will impact your budget. Consider getting professional help to maintain a strong balance within every facet of your finances. The SmartAsset financial advisor matching tool can connect you to financial advisors in your area that can help you with this transition.
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