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What you Need to Know about FHA Loans in Arizona

Posted: 2020-09-14 | Author: Scott Roberts


Federal Housing Administration (a.k.a. FHA) mortgage loans are a popular option for many home borrowers because they are easier to qualify for than conventional loans, and you can still get a good interest rate. In Arizona, FHA loans can also be combined with a down payment assistance program to help make it easier to get into a home.

There are a few different down payment assistance programs that you may be able to combine with an AZ FHA loan. Eligibility for these programs depends on several specific factors, including what county you live in and how much income you earn. If you are able to qualify for down payment assistance, it is possible to buy a house using an Arizona FHA loan with very little money out of pocket.




FHA loans are often a good fit for recent college graduates, first-time homebuyers, low to moderate income earners, those with little money to put down on the home, and those with less than perfect credit. Because of the flexible qualifying requirements, this loan program removes many of the barriers to ownership and allows more individuals and families in Arizona to realize their dreams of having a home of their own.

*It is important to note that some FHA lenders have changed their requirements due to COVID-19, and the pandemic has also significantly impacted interest rates and the housing market. This of course is a very fluid situation and things can change quickly. Speak with one of our Loan Officers about how any COVID-related issues may affect your personal situation.

Requirements for FHA Mortgage Loans in Arizona
The most common type of FHA mortgage is referred to as a 203(b) loan. This is the program that is most often used for single-family homes, although properties with up to four units are eligible. You can also use a 203(b) FHA loan in AZ to purchase or refinance a townhouse, condominium, or manufactured home.

Although the FHA guarantees the loan, the loan is actually t aken out directly from an FHA-approved private lender. The lender puts up the funding, but if you default on loan, the FHA will reimburse them for their losses.

To be eligible for financing, the property being purchased by the borrower must meet specific FHA 203(b) guidelines. This essentially means that the property must meet the US Department of Housing and Urban Development (HUD) minimum property standards. Not all properties will qualify for FHA financing.

Other requirements for 203(b) FHA loans include:

  • A minimum down payment of 3.5% of the loan. A minimum credit score of 500 or higher, although there are more stringent requirements if your credit is below 620. For example, you will need to come up with a higher down payment.
    • A debt to income (DTI) ratio of 43% or less (or up to 50% if there are other significant "compensating factors").
    • Property must be the borrower’s primary residence, meaning a multi-unit property must be owner-occupied.
    • Borrowers are generally only allowed to own one property.

    There are some other Arizona FHA loan programs that apply to more unique situations:

    • 234(c): FHA mortgage program for condominium financing.
    • 203(k): FHA loan program for property rehabilitation/renovation.
    • HECM: FHA reverse mortgage program for homeowners age 62 and older.

    Benefits and Drawbacks of AZ FHA Loans
    As we touched on earlier, an Arizona FHA loan is great for first time home borrowers or those who may need a little extra help making their dream of home ownership a reality. Some of the primary benefits that AZ borrowers receive from FHA loans include:

    • Lower down payment of as little as 3.5% versus 5% for most conventional loans.
    • You can qualify for FHA financing with a FICO score of as little as 500 but ideally at least 620, whereas a conventional loan will usually require a FICO score of at least 670.
    • The general DTI requirement of 43% for FHA loans in Arizona is significantly higher than the conventional loan requirement of 36%.
    • Even if you have some blemishes on your credit report, you can still receive a competitive interest rate with an FHA loan.

    And as we mentioned previously, the down payment assistance programs can make FHA financing even more attractive. For example, for borrowers in the Phoenix area, FHA loans can be combined with the Home in Five Advantage program, which is open to Maricopa County residents and provides up to 5% of the total loan value as a down payment.

    Here are a few reasons that an Arizona FHA loan might not be the right program for you:

    • Because of the lower down payment, mortgage insurance will be more costly than with a conventional loan.
    • Because some Arizona properties do not qualify for FHA financing, your housing options will be more limited.
    • If you are in a situation where there are multiple offers on a home, a seller might be inclined to choose a conventional borrower over an FHA borrower.
    • If you have perfect (or near perfect) credit, you will probably be able to get a better interest rate by taking out a conventional mortgage.

    Speak with your Local Lending Experts
    FHA mortgages are a great option for a lot of Arizona home buyers, but they are not for everyone. To find out if an FHA loan is a good fit for you, the best place to start is to speak with one of our Loan Officers. We can go over your situation in detail and help you develop the most effective plan to get you into the home you want. To get started, contact us today for a free, no obligation consultation.


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