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arizona first-time home buyer programs

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 more guidance in the homebuying process, consider enlisting the help of a professional 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 – 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. 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 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 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 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 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 – Household income equal or lower than 115% of the area median income for most types of USDA loans
– 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 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
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.

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 the aforementioned cancellable private mortgage insurance. You also will not need any credit history for this loan.

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 Homebuyer Programs

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, homebuyers apply through a network of state-approved lenders. Borrowers must meet income and credit score requirements 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 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 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, 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

arizona first-time home buyer programs

  • 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. The SmartAsset financial advisor matching tool can connect you to financial advisors in your area.

Photo credit: ©iStock.com/Aramyan, ©iStock.com/Feverpitched, ©iStock.com/bernardbodo

Liz Smith Liz Smith is a graduate of New York University and has been passionate about helping people make better financial decisions since her college days. Liz has been writing for SmartAsset for more than four years. Her areas of expertise include retirement, credit cards and savings. She also focuses on all money issues for millennials. Liz's articles have been featured across the web, including on AOL Finance, Business Insider and WNBC. The biggest personal finance mistake she sees people making: not contributing to retirement early in their careers.
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