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 buying a home in the Grand Canyon State, we suggest looking into these first-time home buyer programs of the federal and Arizona state governments.
If you need guidance in the homebuying process, consider enlisting the help of a financial advisor.
Federal First-Time Home Buyer Programs
Before we dive into the programs offered exclusively to Arizona residents, we’ll go over a handful of national home buyer programs offered by the federal government. It’s smart to consider both federal and state programs as you start the mortgage process.
FHA Loans
| Pros | – Low down payment – Flexible credit approval |
| Cons | – A 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 580 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. These loans are a great option for anyone who 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 get that 3.5% down payment, though. If your score falls anywhere between 500 and 580, you’ll need to make a down payment closer to 10%.
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 580 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 down payment.
Plus, since the government will back part of your risk, you won’t have to get private mortgage insurance (PMI), as is usually required with small down payments. 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 580 to secure a VA loan. You also need to pay a VA fund fee, which ranges anywhere from 1.25% to 3.3% 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 | – Only available to those who cannot secure a conventional mortgage |
| 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 homebuyers 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, homebuyers must have adjusted household income equal or below the median income for the designated area they want to live in.
Good Neighbor Next Door Program
| Pros | – Flat 50% discount on the home’s value – Down payment as low as $100 |
| 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 make 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.
On the other hand, Freddie Mac offers Home Possible® mortgages with down payments as low as 3%. The Home Possible® loan comes in 15- to 30-year fixed-rate and 5/5, 5/1, 7/1 and 10/1 adjustable-rate terms, along with those mentioned above cancellable private mortgage insurance. You also will not need any credit history for this loan.
Native American Direct Loan Program (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. The interest rate changes based on market and prime rate fluctuations, but currently starts at 6%.
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 Homebuyer 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, homebuyers apply through a network of state-approved lenders.
Borrowers must meet income and credit score requirements (minimum score of 640) and complete a homebuyer 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 45% – Income not to exceed $126,351 – Maximum loan amount $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 down payment 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 homebuyers 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 and 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.
Bottom Line
When taking out a mortgage, evaluate your options carefully. Federal and state government programs can help homeownership become more attainable. But you’ll need to meet the requirements. There are plenty of opportunities to explore that can help you in Arizona. Finding the right program that you qualify for can help you potentially purchase the home you want a lot faster.
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 finances in a big way. While it means you’re building up home equity, it can also force you to adjust your budget. Consider getting professional help manage the implications for your finances. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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