The southwest is a beautiful region in the country where millions of people choose to make a living. One of the most vibrant cities in the region is Phoenix, Arizona, which could be the perfect spot for your home ownership dreams.
The biggest obstacle to obtaining that dream is typically the purchase price of a home. Most buyers are unable to afford the full cost of a property, especially if they are first-time homebuyers. Fortunately, FHA loans can make your desired home more affordable, even if you have limited resources.
FHA Loan Vs Conventional Loan
Fannie Mae and Freddie Mac Vs the FHA
The most common types of home loans in Arizona are traditional conventional loans. These are mortgages that are not backed by a government agency like the Federal Housing Administration or the Department of Veterans Affairs. Rather, they are usually backed by Fannie Mae and Freddie Mac, two organizations that are regulated by the government and play a huge role in the real estate market.
An FHA loan is backed by the government itself, specifically, the Federal Housing Administration, which allows lenders to accrue less risk.
Lower Requirements, More Restrictions
FHA home loans are more accessible to those with limited financial resources. Lower credit scores, higher debt-to-income ratios, and smaller down payment amounts may limit a borrower’s options, but the FHA allows borrowers to still obtain homeownership.
However, there are more restrictions on how the funds can be used and how much can be loaned.
What if Conventional Loans are Too Much?
The problem with conventional loans is that not everyone can meet the down payment requirements or the proper credit scores. This can be a discouraging obstacle for those with lower income, dissuading them from pursuing their dreams of home ownership. Fortunately, there are loans available for these potential buyers to make homeownership more accessible for all.
FHA loans make homeownership more accessible for people who cannot meet the requirements of a conventional loan. At District Lending, we offer multiple mortgage options to meet the needs of every kind of buyer, and that includes FHA home loans.
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What is an FHA Loan, and What Affects Loan Costs?
These loans are partially insured by the Federal Housing Administration (FHA). When lenders are assessing the risk of borrowers, they often require mortgage insurance to be paid monthly, which helps protect the lender from the risks of a potential default. The government offers payment assistance for that insurance so that lenders will lower their requirements for an Arizona FHA loan.
The result is a more affordable loan with lower credit score requirements, lower down payment requirements, and a smaller insurance premium.
A good credit score tells lenders that you reliably pay back your debts, whether that means credit cards, auto loans, student loans, or other forms of debt. The higher your credit score, the more likely you are to be approved for a loan with a competitive interest rate.
Lower Minimum Credit Score with FHA Loans
Is your credit score not high enough for a traditional loan? As long as your payer history is sound, you can acquire an FHA loan if your credit score is 580 or above. Otherwise, you might need to have a score of at least 620.
How much money can you pay upfront to purchase a home? Conventional mortgages require down payments of at least 20% to waive mortgage insurance premiums. Any down payment lower than that and insurance may be required by the lender since it is considered risky.
FHA Loans Accept a Lower Down Payment
If you have the right credit score, then you can obtain an FHA loan with a minimum 3.5% down payment. If your credit does not meet the 580 number, then you will have a harder time obtaining an FHA home loan unless you can afford a 10% down payment or higher. Borrowers with fewer capital assets typically benefit from FHA home loans because of these lower requirements.
Lower Debt-to-Income Ratio Requirement
Lenders want to know what your debt-to-income ratio is to ensure that you can cover your monthly premiums and won’t default on the payments. Some lenders may require a DTI lower than 50%, with lower numbers increasing your likelihood of qualifying for an FHA home loan.
Phoenix is a lively real estate market, more so than most other counties in the state. The market will have a big impact on both the price of the home and the interest rates in the area. Your total mortgage cost will change depending on what market you are looking for a home in.
Primary Residence Requirement
There is another requirement that must be met to acquire Arizona FHA home loans. The home in question must be your primary residence going forward. Additionally, FHA home loans are not given out for second homes.
When you complete a transaction to buy a home in Phoenix, there are going to be closing costs on top of the cost of the property. Closing costs can often be wrapped up into the loan amount, making part of your down payment cover those fees. Typically, these fees end up costing between 3-6% of the total cost of the property.
Phoenix FHA Loan Limits
FHA home loans from District Lending have different requirements than conventional loans. These lower limits make it easier for people with lower income and financial assets able to afford a home.
If you meet all these FHA guidelines, then you should be in a great position to obtain an FHA home loan to make your dreams of property ownership in Phoenix possible.
The District Lending Difference
Whether you are unable to afford a conventional down payment or your credit history is not strong enough for a traditional loan, District Lending can help you determine whether FHA mortgages are right for you.
We never want you to feel uninformed about such an important decision. Investing in home loans is a huge deal, so you should understand all the details before committing to anything. Request a free quote to see what maximum loan amount you can afford and the monthly estimate.
Multiple Home Loan Products
Whether you qualify for an FHA loan, a VA loan, a conventional mortgage, or a jumbo loan, District Lending can guide you through the application process. Plus, if you want to refinance in the future, we offer multiple options for refinancing as well. All types of borrowers can find home loans that will work for them with the right lender, whether they are buying their first home, growing their real estate investment portfolio, or looking to refinance.
Payment Assistance Program
If you are having trouble picturing how you can pay for FHA loans or a down payment, then District Lending can discuss some options with you for assistance with your down payment plan.
If you are interested in FHA home loans from District Lending, contact us today to start the conversation and achieve your dreams of residential property ownership.