The process of purchasing a first home can be challenging. The good news is that there are always options available to simplify this process and provide financial assistance. MoneyGeek examines the numerous Arizona first-time homebuyer programs so that you can select the one that best meets your requirements.
What Is a First-Time Homebuyer Program & How Can It Help?
Due to the potentially high cost of down payments, first-time homeowners must determine how much they can pay or borrow. A down payment refers to the initial payment that is made toward the overall cost of a home's purchase. This value is typically represented as a percentage, which influences the amount you must borrow for your home purchase.
Federal loan programs can assist you in financing the acquisition of a property, hence easing this procedure. Additionally, there are state-specific programs that might help with down payments and loan assistance.
However, each home loan program will have distinct eligibility requirements. For example, federal homebuyer programs, such as the FHA loan program, cannot be utilized for investment or rental homes. They must also be certified by an FHA-authorized appraiser. On the other hand, Arizona first-time homebuyer programs are only available to the state's residents.
Finally, rather than needing to wait years to save up, knowing your loan options and available assistance programs will enable you to begin making payments toward a home.
Zero-Down-Payment Loan Programs
You can purchase a home with no down payment by obtaining a zero-down-payment home loan, such as a VA or USDA loan.
USDA loans are primarily for applicants who cannot qualify for a conventional home loan and want to buy a home in an eligible rural area. Applicants must be residents or nationals of the United States, fulfill income eligibility conditions and commit to keeping the property as their primary residence.
There are three principal USDA loan categories:
- Home improvement grants and loans: These USDA grants and loans offer homeowners the finances necessary for renovating or repairing their homes.
- Loan guarantees: As a result of the USDA's assurance of the home loan given by a partnering local lender, borrowers can obtain cheap mortgage interest rates even without making a down payment.
- Direct loans: The USDA provides direct loans to borrowers with low and extremely low incomes.
Your USDA loan qualification may vary based on the county in which you live. For example, in Apache County, Arizona, homeowners may be able to obtain a single-family home loan with a maximum limit of $377,600.
VA home loans are a viable option for financing homes for veterans and other qualified persons. Low interest rates, no down payment and no private mortgage insurance requirement are a few advantages.
The VA loan provides a variety of lending options, including:
- Purchase loans and cash-out refinance loans: These loans are available for your home or the home of your spouse or dependent (for active-duty service members). Loan applicants must have acceptable credit, sufficient monthly income and a valid Certificate of Eligibility (COE) to apply.
- The Interest Rate Reduction Refinance Loan (IRRRL): IRRRL requires that applicants have a VA-backed mortgage. It reduces the monthly payment and interest rate on a VA-guaranteed home loan.
- Native American Direct Loan (NADL) Program: The NADL program supports Native American veterans with the purchase, construction, renovation or refinancing of a house on Native American territory.
- Specially Adapted Homes (SAH) or Special Housing Adaptation (SHA) grants: This program assists veterans with permanent and total service-related disabilities in finding suitable homes.
Low-Down-Payment Loan Programs
You can purchase a home with a low down payment if you are eligible for low-down-payment financing options, such as conventional and FHA loans.
Fannie and Freddie (Conventional) Loans
Fannie and Freddie (conventional) loans, which are the most prevalent type of home loan, are not associated with any particular government program. Despite the fact that they might be more difficult to obtain, conventional loans are generally less expensive than FHA loans.
They are divided into two basic loan categories:
- Conforming Loans: The government has established conforming loan maximums. The corporations that support conforming loans, Fannie Mae and Freddie Mac, create additional standards for these mortgages.
- Non-Conforming Loans: Non-conforming loans have fewer set parameters to follow. Eligibility, fees and coverage of non-conforming loans may vary greatly among private lending companies, so it is essential to compare different offers.
Conforming loans require a loan amount of $726,200 or less in the majority of counties. If your down payment for a home loan is less than 20%, you will generally be required to obtain private mortgage insurance (PMI).
Some lenders also offer non-conforming loans to borrowers with special scenarios, such as individuals who are self-employed or have low credit.
FHA loans are private, government-backed loans with 15- and 30-year fixed terms. They allow borrowers with weak credit ratings or low down payments who are unable to qualify for conventional loans to have access to more flexible options, which speeds up the process of becoming a homeowner.
Nevertheless, take into account that the majority of FHA loans with less than a 20% down payment necessitate buying private mortgage insurance, which consists of upfront and recurring payments. This can increase the long-term costs of an FHA home loan.
Based on your credit rating, the amount of your down payment may differ. For example, those with a credit rating between 500 and 579 will be required to make a minimum down payment of 10%, but people with a credit rating of 580 or more will only be required to make a down payment of 3.5%.
Utilizing the Department of Housing and Urban Development's online tool, potential borrowers can determine the maximum loan amount for which they qualify.
An FHA 203(k) loan can be utilized to finance both the purchase and restoration of a house with a single mortgage. Due to government backing, the FHA 203(k) loan may have more generous entry criteria than a conventional loan. However, remember that you may need approval from an FHA 203(k) consultant to carry out any necessary repairs or improvements on the property.
Additionally, FHA 203(k) work must commence within 30 days of the loan’s closing and be completed within six months. Using an FHA loan, homeowners can finance the installation or repair of flooring and roofing, the elimination of any health hazards, the improvement of a home's energy efficiency, the renovation of the home's foundation and landscaping and several other projects.
The requirements for an FHA 203(k) loan include a minimum credit score of 500, an acceptable debt-to-income ratio and a down payment. These requirements are comparable to the standard FHA loan conditions.
Zero-down-payment loans: Zero-down-payment loans provide loans with no upfront payment, but approval can be challenging due to the specific eligibility requirements.
USDA: To be eligible for a USDA home loan, your estimated household income must be less than 115% of the area's median household income. The home also must be in an eligible rural area.
VA: Applicants for a VA loan often need a Certificate of Eligibility (COE). To qualify, you must be an eligible veteran, active-duty service member or surviving spouse.
Conventional loan: Based on your home's location, the loan amount for conforming loans must be $647,200 or less.
FHA: FHA loans are ideal for borrowers with bad credit scores or limited funds.
FHA 203(k): FHA 203(k) loans can cover both the purchase price and the cost of house repairs and improvements.
Arizona Homebuyer Programs
You may be eligible for state-specific Arizona first-time homebuyer programs in addition to federal home loans to assist you in funding your home purchase.
Arizona Home Plus Mortgage Program
The Arizona Home Plus mortgage program is a three-year soft second mortgage program with no interest and no payments that is forgiven monthly at a rate of 1/36 over the life of the lien.
Home In Five Advantage Program
The Home In Five Advantage program offers down payment and/or closing cost assistance of up to 5% in Maricopa County. Veterans, active-duty service members, active reservists and active National Guard members are eligible for an additional 1% assistance.
Pima Tucson Homebuyer’s Solution
The Pima Tucson Homebuyer's Solution provides options for down payment support in Pima County, ranging from 2.5% to 6%. This loan program has no purchasing price limit beyond the maximum amounts of the loan program borrowers choose. For instance, Pima County's maximum FHA loan limit for a single-family home in 2023 is $472,030.
FAQs for First-Time Homebuyer Programs in Arizona
MoneyGeek has offered answers to some frequently asked questions in order to assist you in finding a way to finance a first-time home purchase in Arizona.
- U.S. Department of Agriculture. "Rural Development Single Family Housing - Area Loan Limits." Accessed September 25, 2022.
- U.S. Department of Agriculture. "Single Family Housing Guaranteed Loan Program." Accessed September 25, 2022.
- U.S. Department of Veterans Affairs. "VA Home Loans." Accessed September 25, 2022.
- Consumer Financial Protection Bureau. "Conventional Loans." Accessed September 25, 2022.
- U.S. Department of Housing and Urban Development. "Loans." Accessed September 25, 2022.
- U.S. Department of Housing and Urban Development. "203(k) Rehab Mortgage Insurance." Accessed September 25, 2022.