The Complete Arizona Conventional Loan Guide (2023)

According to an ICE Mortgage Technology Report, conventional loans are one of the most popular types of loans in the United States, accounting for over 80% of home loans closed in 2021. This comprehensive guide will teach you everything you need to know to decide if a conventional loan is an option for your home-buying journey in Arizona. You will learn the following:

  • What a conventional loan is
  • How it differs from other loans
  • The two broad types of conventional loans
  • How to qualify for a conventional loan
  • Some of the average costs and conventional loan limits specific to Arizona

What is a Conventional Loan?

A conventional loan is any loan that is not backed by a specific government agency. They are the most popular type of loan in Arizona because they tend to be more flexible to your financial situation than government-backed loans. A typical conventional mortgage loan also allows for lower down payments and interest rates.

How is a Conventional Loan Different From a Government-Backed Loan in Maricopa and Pima County?

Government-backed loans are designed to help a specific niche of homebuyers buy their first house. The government insures the loan to protect the lender, which allows the lender to offer a better deal for loans that meet the agency’s goal.

  • FHA Loan: The Federal Housing Association (FHA) loan has helped people become homeowners since 1934. An FHA loan mainly focuses on first-time homeowners with lower credit scores to attain a home with lower down payments and closing costs.
  • USDA Loan: USDA loans are backed by the United States Department of Agriculture. They are geared to help new low-to-moderate-income homeowners buy a primary residence in rural areas. You may even be qualified to forego a downpayment.
  • VA Loan: A VA loan from the Department of Veterans Affairs helps military members and their surviving spouses buy a home with benefits like zero down payment, no private mortgage insurance requirements, and no prepayment penalties.

While these programs offer great benefits to qualifying home buyers, they may not fit your specific financial situation or demographic. In this case, a conventional loan may be your best solution. If you are unsure if a conventional or government-backed loan is right for you, one of our loan specialists can help!

What Types of Conventional Mortgages Are Available in Areas Like Phoenix and Tuscon?

Conventional loans come in a wide range based on your financial situation. They are broken down into two broad types: Conforming and Non-Conforming.

Conforming Conventional Loans are loans with terms and conditions that meet the criteria to be funded by the Federal Home loan Mortgage Corporation (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). They work with lenders that meet their standardized criteria and act as a secondary market.

  • There is a hard limit to how much lenders can offer for a conforming loan, which changes yearly based on Frannie Mae’s and Freddie Mac’s criteria. Some high-cost areas receive a higher limit than others.
  • In 2023, the baseline limit for a single-family home loan in Arizona is $726,200. This is up from $625,500 in 2022. Homes that exceed the baseline limit may need to consider a non-conforming Jumbo Loan, which requires higher credit scores and other qualifiers.
  • Most conforming loan programs require a 5% down payment, though some home buyers may qualify for a 3-3.5% down payment.
  • Some programs offer low mortgage insurance rates or opportunities to drop mortgage insurance.
  • Most conforming loan programs offer lower interest rates
  • Conforming loans require you to have various qualifiers like a credit score of 620 or higher, plus two years of stable income and employment.

Non-Conforming Conventional Loans do not follow Freddie Mae’s and Freddie Mac’s guidelines. They come in a wide variety of shapes and sizes that might fit your financial situation, especially if your credit history or debt-to-income ratio isn’t quite where you need it for a conventional loan. Here are a few common examples:

  • Jumbo Loan: A loan that borrows more than the maximum for a Freddie Mae or Freddie Mac backed conforming loan. It often requires a higher credit score, a higher down payment, and a lower debt-to-income ratio.
  • Portfolio Loan: A loan the lender or broker does not intend to sell off to the secondary market. 
  • Subprime Loan: A conventional loan for high-risk borrowers with low credit scores or showing a high risk of defaulting on the loan. A subprime loan allows people to attain a home at the cost of a higher-than-average interest rate.
  • Amortized Conventional Loan: The homeowner pays a set monthly payment from the beginning to the end of the life of their loan. It is higher than usual but does not require a balloon payment later. Amortized loans can have a fixed or adjustable rate.
  • Adjustable-Rate Mortgage: You get a fixed interest rate for a set number of years, then the interest rate adjusts periodically based on the current market rate.

We recommend speaking with our loan specialists about your unique financial situation before you sign up for a non-conventional loan. They may be able to recommend loans, programs, and down payment assistance programs that you may qualify for.

What Are the Advantages and Challenges of a Conventional Loan in Arizona?

Conventional loans offer several advantages to consider. The key difference is the potentially lower costs, especially if you have good credit scores and credit history. Depending on the conventional loan, you can benefit from higher loan limits, lower down payments, lower interest rates, or other features.

However, the most favorable conventional loans have higher requirements than most government-backed loans.

  • Credit Score: Most conventional loans require a minimum credit score of 660, with a few as low as 620. You want your score to be in the mid to upper 700s for more favorable terms.
  • Down Payment: many non-conforming conventional loans will require a 10-20% down payment, depending on your financial situation. Even conforming loans require a 3-5% down payment.
  • Private Mortgage Insurance: If you pay less than 20% down up-front, you may be required to purchase mortgage insurance.
  • Stricter Qualifying Guidelines: The lender is taking a higher risk with loans that are not government-backed, so your financial situation may be scrutinized more closely. You will be less likely to be approved for a mortgage if you have a bankruptcy on your record, unstable employment, or other financial risks.

No mortgage is right for everyone. If you are unsure if a conventional mortgage loan is right for you, contact us to discuss the advantages and drawbacks of the ones you qualify for!

How Do I Qualify for a Conventional Loan in Arizona?

  1. Check Your Credit Score. If you are under 660, we recommend building your credit for more favorable terms and offerings.
  1. Check Your Debt to Income Ratio (DTI). Lenders will want to see a total debt of no more than 36% of your gross income. Some conforming loans backed by Frannie Mae and Freddie Mac may go up to 50%.
  2. Determine How Much House You Can Afford. Before you set your sights on a specific house, sit down and analyze your financial situation. Mortgage calculators can give you a rough estimate of your budget, but you will get a far more accurate estimate by speaking to a local mortgage specialist. They may even be able to point you to government-backed loans and down payment assistance programs that you qualify for.
  3. Get All Your Paperwork in Order. Most loan applications require you to show good credit history and stable employment for the last two years. You can streamline your application process by having your credit reports, paystubs, and bank statements ready for review before the lender asks.
  4. Start Saving a Down Payment. The more money you put into a down payment, the better your chances for a lower interest rate. If you can put down 20% or more, you may be able to buy a home without buying private mortgage insurance (PMI).
  5. Estimate and Save Up for Closing Costs. Closing costs are all the fees and charges in the real estate transaction outside the home’s purchase price. You can expect to pay around 1-4% of the total loan in closing costs in Arizona. The current average closing cost is around one of the lowest in the nation at $4701. In addition, the closing costs could be rolled into the loan or you may need to pay upfront. It will depend significantly on factors like the home seller, the lender, and the loan you choose.
  6. Research Mortgage Lender. Interest rates, fees, and other costs vary from lender to lender. The specialist you choose could save you tens of thousands of dollars on the same house. Make sure to get a quote from 3-5 of your most trusted mortgage lenders before you make a decision. Then narrow your focus to one with a high reputation and a “client first” outlook.
  7. Get Pre-Approved! A pre-approval letter is a letter from a lending company agreeing to lend you up to a certain amount if you meet certain conditions. A pre-approved letter greatly benefits your house hunt for several reasons. First, it helps you to budget and negotiate house prices with sellers. Second, if there is competition for a house, most sellers will favor homebuyers who have their finances up front!

What If I Don’t Qualify For a Conventional Loan in Arizona?

Several factors could disqualify you from a conventional loan. If you are just starting to build your employment and credit history, suffered a financial difficulty that forced you to declare bankruptcy, or your debt is a little higher than usual, you may struggle to qualify for a conventional loan. 

If you do not qualify for a conventional loan, you may still qualify for a government-backed loan. You could qualify if you find a co-signer or attain government or state-funded assistance.

Let Agave Experts Help You Choose Your Ideal Type of Mortgage

If you are unsure if a conventional mortgage loan is right for your house hunt in Arizona, let us help! We believe in a “Client first” approach when it comes to delivering the services and lending options that fit your financial situation. We even communicate on your behalf with lenders to ensure you get the best deal possible! Contact us today for a consultation.

Marshall Gottlieb - Co-Owner and CEO
Marshall spent seven years in hospitality and the restaurant industry prior to beginning a career in real estate and lending. After obtaining a finance degree with an emphasis in investments from Northern Arizona University, he began working at Quicken Loans. He spent seven years there as a banker and then Senior Director prior to co-founding Agave Home Loans. (NMLS ID: #1107208)

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