There’s nothing more exciting than preparing to purchase your own home in sunny Phoenix, Arizona. With a vibrant economy, gorgeous scenery, and a welcoming culture, Phoenix is the perfect place to make your homeowner dreams come true.
However, if you’re pondering taking the step toward this bright new future, you might be wondering what exactly your mortgage might look like. Many mortgage options are specialized for specific demographics, while others are available to everyone with good credit. There are a variety of different home loans out there, and today we’ll discuss four of the most common types of home loans in Phoenix. By the end of this article, you should feel confident discussing mortgage options with your friendly Phoenix, Arizona, mortgage broker, who will help you find the best way to get those house keys.
Conventional mortgages are the most common type of home loan
If your finances are in good shape – you have a great credit score, a steady income, and plenty saved for a down payment – then you are likely going to choose a conventional loan. As the name suggests, these are the most common types of loans available for house hunters, offered by a variety of different agencies and with no particular specializations for applicants. All that matters is that you have a credit score that is within the limits they want, and that your application doesn’t show any red flags.
The downside of these loans is that they are not guaranteed or insured by the federal government, meaning that they are subject to the regulations of the particular private lender. However, they do allow you greater options, including variable loan amounts and properties that you can purchase. This is a great solution for those looking to finance anything other than a residential home, such as a farm or a multi-family property
FHA loans are insured by the federal government
Federal Housing Administration (FHA) loans are meant to encourage those with less money or lower credit scores to purchase homes, as they guarantee that the lender will receive part of the money back should the borrower default on their loan. The threshold of credit scores they will accept is much lower than ones by private lenders: the FHA will accept scores as low as 500, though those with scores below 579 will need to have a 10% down payment, rather than the 3.5% down payment for those with scores above 580. Regardless, a 10% down payment is very small compared to what private lenders would ask for, and the requirements to receive a loan are far more lenient. This is a great option for those with little to no credit, or those who are struggling with debt.
Veterans Affairs (VA) loans help those who served in the military
Another federally supported mortgage program is VA loans, which are administered by the US Department of Veterans Affairs. These are available to active-duty military, as well as veterans and some surviving spouses of military members. They have highly favorable terms, including no down payment and a much lower interest rate than would be available through a private vender. As mentioned, these are only available to those associated with the military; with a much smaller pool of eligible applicants, the VA can provide these great values to their service members.
Jumbo loans are mortgages for those who need a very large loan
These are another uncommon type of mortgage, though they are eligible to anyone who has the right credit score and financial profile. A jumbo loan is one that exceeds the limits set by Fannie Mae and Freddie Mac, the two government entities that buy and sell the majority of conventional loans. The threshold is set at $726,200 for a single family home in most markets, though there are exceptions: Hawaii, Alaska, and some designated high-cost markets have a threshold of $1,089,300.
If you need a mortgage that is larger than $726,200, you will have a far higher bar to clear in terms of getting approved. There are much stricter underwriting stipulations, and you need an immaculate credit score, as these are considered very high-risk loans. The group of lenders offering jumbo loans is quite small, so you will have less choices in terms of who will service your loan; however, this doesn’t mean that you’ll just be stuck with whatever terms they offer. If you work with a mortgage broker, you can negotiate a better deal for yourself, with more favorite rates and stipulations.
Final thoughts
Purchasing a home in Phoenix, Arizona, is incredibly exciting, and there’s a variety of different avenues that will help you purchase the perfect home for you. Regardless of what type of mortgage you choose, be sure to work with a mortgage broker to ensure that you get the very best rates – and the very best service possible as you work through the application, selection, and signing process.
