Buying a home in Arizona involves a huge financial commitment. Arizona home buying programs provide financial assistance, easing the experience that homebuyers go through. The programs were started to help first-time homebuyers finance their American dream of homeownership. This is considering that many interested homebuyers are not able to meet the requirements for a conventional home loan. However, applying and getting approved for the Arizona home buying programs, is not necessarily an easy process. Here are some lessons I learned with Arizona home buying programs.
- Credit Score Plays a Huge role
When considering Arizona home buying programs, credit score can be a confusing topic, even for the financially well-informed customers. This is considering that a majority of people consider the home buying programs to be suitable for people with a poor credit score. The reality is that different Arizona home buying programs require a substantially good credit score to qualify for the mortgage. Thus, the notion that people with a poor credit score will qualify for home buying programs may not necessarily be true. Let us different home buying programs in Arizona, with respect to the credit score requirements.
- FHA home loan: the Federal Housing Administration requires a credit score of at least 500, to apply for the FHA home loan
- USDA home Loan: There is no minimum credit score set by the US Department of Agriculture, although most lenders may require a minimum of 640 to borrow the USDA home loan program.
- VA Home Loan: the Department of Veteran Affairs does not set a minimum credit score requirement. The benchmark varies from one lender to another. However, a FICO score of 620 is common.
As illustrated above, the mortgage lenders in Arizona determine the minimum credit score, at which they will lend. It is necessary for mortgage borrowers to work on their credit scores in order to meet the requirements.
- Arizona Home Buying Programs May Require a Down Payment
The different home buying programs in Arizona have certain guidelines relating to Down payment. Thus, it is important for mortgage borrowers to familiarize themselves with the guidelines on mortgage down payment before starting the application process. Let us review the down payment requirements for different mortgage products in Arizona.
- The FHA Home Loan: the Federal Housing Administration is a low down payment home loan. The mortgage borrowers are expected to pay as low as 3.5% as a down payment. However, anyone with a credit score below 579 will have to pay up to 10% down payment.
- The VA Home Loan: this is a no down payment home buying program, but it is available only to the service members, veterans, and surviving spouses.
- The USDA Home Loan: Zero down payment mortgage, available to those buying properties within certain rural and suburban areas.
- The Conventional Home loan: Mortgage borrowers get as low as 3.5% so long as the conventional home loan conforms to the guidelines set by Fannie Mae and Freddie Mac.
Thus, if applying for the FHA home buying program or the conforming conventional home loan, you need to start saving for the mortgage down payment.
- Closing costs
If you are buying a house in Arizona and applying for a mortgage under either of the Arizona home buying programs, it is expected that you save for mortgage closing costs. On average, the closing costs can fall within the range of 3 to 4% of the home purchase price. Thus, talk to your mortgage lender to know what the actual closing costs may be, and start saving the amount to avoid getting disqualified at the time of applying for the mortgage. The closing costs will be used for paying different fees, which include an appraisal, home inspection, credit report, attorney, and homeowners insurance.
- Understand the Mortgage Insurance Premiums and Funding Fee Costs
When applying for Arizona home buying programs, the mortgage lenders will require that you pay either the mortgage insurance premium or the funding fee. Let us examine what each of the two means.
- The Mortgage Insurance Premium
Abbreviated as MIP, this premium is paid on the insurance policy to cover the mortgage lender in the event that the borrower does not meet the mortgage repayments. Thus, the MIP protects the mortgage lender from incurring a loss in the possible event the borrower is unable to repay the loan. The loans backed by FHA require payment of annual mortgage insurance. Borrowers who do not wish to pay the annual MIP should pay a down payment of 20%.
- Funding Fee
This is an onetime fee that is paid when applying for a home or refinancing an existing loan. The funding fee is meant to help keep the program running so that future generations can enjoy its benefits. The VA Home loan is a good example of home buying programs in Arizona that requires payment of a one-time funding fee.
If you are considering Arizona home buying programs to fund your dream home, it is important you familiarize yourself with the aspects we have outlined in this post. Get an experienced mortgage broker to guide you through the tedious process of mortgage application and processing.