A first-time homebuyer’s guide to Arizona

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First-time homebuyers in Arizona are facing many of the same challenges as buyers across the rest of the country. Thanks to high prices, low Inventory, and fierce competition from outside investors and cash buyers, the mere thought of dipping a toe into this red-hot housing market can be daunting.

 

According to Redfin, the median sale price of a home in Arizona went from $372,700 in April 2021 to $462,400 in April 2022 — a 24% increase in just 12 months.

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And in some popular Arizona communities, the numbers were even higher. Phoenix home prices were up 27.7% compared with last year, with a median sale price of $460,000. Mesa home prices were up 27.4%, with a median sale price of $459,000. And in Scottsdale, home prices saw a 24.5% increase year-over-year, with a median selling price of $850,000.

 

Buyers may feel as if the keys to their first home are dangling further out of reach, but fortunately, they may be able to get financial help through programs offered by the state and some counties. There also are longstanding federal programs that could improve a buyer’s chances of success.

 

Recommended: Guide to Buying Your First Home

6 Arizona Programs for First-Time Homebuyers

Most first-time homebuyer programs in Arizona are designed to help low- to moderate-income buyers who need help coming up with a down payment and/or closing costs. Generally, that assistance comes in the form of a second mortgage that is fully forgiven if the buyer stays in the home for a set amount of time (usually three years).

 

During that time, buyers don’t have to make a monthly payment or pay interest on the second loan. But if they sell the home before the full three years is up, they will be required to repay a portion of the assistance they received.

 

Participants must meet limits regarding their income, credit scores, and debt-to-income ratio. Typically, the home must be the buyer’s primary residence, and there may be limits on how much the home can cost. Also, at least one of the buyers may be required to complete a homebuyer education course.

 

Recommended: Understanding Mortgage Basics

1. Home+Plus Down Payment Assistance Program

The Arizona Industrial Development Authority’s Home+Plus Home Buyer Down Payment Assistance
Program
  offers qualifying buyers a 30-year fixed-rate mortgage paired with a no-payment, 0% interest second loan they can put toward their down payment, closing costs, or both.

Depending on your eligibility and the home you plan to buy, you may have the option of choosing from different types of mortgages, including an FHA, VA, USDA, Fannie Mae, or Freddie Mac home loan.

 

Availability: Statewide

 

Assistance Amount: Up to 5% of the home’s purchase price

 

Type of Assistance: Second mortgage, fully forgiven after three years in the home

 

Benefits and Qualifications Include:

  • Annual income can’t be more than $112,785
  • All borrowers must have a minimum credit score of 640 (680 for some loan types)
  • Maximum DTI ratio allowed is 45% (50% in some cases)
  • Mortgage insurance is required if the first mortgage is a Fannie Mae or Freddie Mac loan and the down payment is under 20%, but the cost may be lower than for coverage outside the Home+Plus program.
  • You don’t have to be a first-time homebuyer to qualify.
  • At least one borrower must complete a homebuyer education course before the loan closes

To Apply: If you’re interested in Home+Plus assistance, a good first step may be to find a participating lender  that is familiar with the program and can take you through the process.

2. Home in Five Advantage Program

The Home in Five Advantage  program is offered to low- to moderate-income homebuyers in Maricopa County. Qualified borrowers can get a 30-year fixed-rate conventional loan, or FHA or VA loan, paired with a forgivable second loan for their down payment and/or closing costs.

Eligible K-12 teachers, first responders, military personnel and veterans, and individuals who earn up to $39,500 annually may receive an additional 1% in assistance.

 

Availability: Maricopa County, city of Phoenix

 

Assistance Amount: Up to 5% of the home’s purchase price

 

Type of Assistance: Second mortgage, fully forgiven after three years in the home

 

Benefits and Qualifications Include:

  • Annual income can’t be more than $112,785
  • All borrowers must have a credit score of 640 or above (680 for some loan types)
  • Maximum DTI ratio allowed is 50%
  • No maximum purchase price
  • At least one borrower must complete a homebuyer education course
  • Buyers must occupy the purchased home as their principal residence within 60 days of closing
  • Must be a new or existing single-family home, condominium, or townhome

Homebuyers in designated low-income neighborhoods may receive an additional 0.5% in assistance through the Home in Five Advantage BOOST program. Your lender can help you check your eligibility for this extra support.

 

To Apply: A trained loan officer with an approved lender  can help you get started.

3. Pima Tucson Homebuyer’s Solution Program

The Pima Tucson Homebuyer’s Solution program  is provided by the Tucson Industrial Development Authority and the county of Pima. The program offers qualified homebuyers multiple first mortgage options (including FHA, VA, Freddie Mac, and Fannie Mae loans) along with a forgivable second mortgage that can be used for a down payment and closing costs.

Availability: Pima County and city of Tucson

 

Assistance Amount: Up to 6% of the home’s purchase price

 

Type of Assistance: Second mortgage, fully forgiven after three years in the home

 

Benefits and Qualifications Include:

  • Annual income can’t be more than $112,785
  • All borrowers must have a credit score of 640 or above (680 for some loan types)
  • Maximum DTI ratio allowed is 45% (50% in some cases)
  • No minimum investment required from the borrower’s own resources
  • At least one borrower must complete a homebuyer education course
  • Buyers must occupy the purchased home as their principal residence within 60 days of closing

To Apply: Contact an approved lender .

4. Tucson Pima County HOME Down Payment Assistance Program

Qualified homebuyers in Tucson and Pima County can receive down payment assistance through the Community Investment Corporation’s HOME Down Payment Assistance Program . Assistance is based on family size and household income.

Availability: Pima County and city of Tucson

 

Assistance Amount: Up to 10% of home’s purchase price

 

Type of Assistance: Second mortgage; forgiveness depends on loan amount and duration

 

Benefits and Qualifications Include:

  • Must contribute a minimum of $1,000 from own funds toward home purchase
  • Cannot own a home at time of purchase
  • Maximum home purchase is $299,250 for existing home, $334,680 for new construction
  • A certified home inspection is required. (Cost can be applied toward buyer’s $1,000 minimum contribution.)
  • Buyers must occupy the property as their principal residence
  • Buyers can’t have cash assets exceeding $10,000
  • Buyers must have the equivalent of one month’s mortgage payment in reserve
  • Buyers must show the household’s ability to support mortgage payments (based on DTI)
  • Borrowers must complete a homebuyer education course

To Apply: Contact one of the following approved counseling agencies:

5. Mortgage Credit Certificate Program

Borrowers can use a mortgage credit certificate (MCC) to claim a portion of their annual mortgage interest, dollar for dollar, up to $2,000, as a federal tax credit every year for the life of their loan.

Applicants must be first-time homebuyers (you can’t have owned a home within the past three years) unless you’re a qualified military veteran or buying in a designated area. The nonprofit Community Investment Corporation  administers the MCC program; income and purchase price limitations may vary by county.

 

To Apply: You can apply for the credit certificate when you take out a home loan through a state-approved participating lender. To get the credit, you’ll need to complete IRS Form 8396 when you file your taxes.

 

Recommended: 6 Simple Ways to Reduce a Mortgage Payment

6. Pathway to Purchase Homebuyer Assistance Program

The Pathway to Purchase program also offers homebuyers a 30-year fixed-rate mortgage paired with a forgivable second mortgage as down payment assistance. But Pathway to Purchase, which is offered by the Arizona Department of Housing and the Arizona Home Foreclosure Prevention Funding Corporation, is available only to borrowers using a Freddie Mac HFA Advantage mortgage offered by an approved lender. You do not have to be a first-time buyer to qualify.

Availability: Limited to designated communities hit hardest by foreclosures: Bull Head City, Casa Grande, Glendale, Green Valley, Kingman, Phoenix, Rio Rico, Sahuarita, Sierra Vista, Tucson, Vail, and Yuma.

 

Assistance Amount: Up to 10% of the home’s purchase price, up to $20,000

 

Type of Assistance: Second mortgage, fully forgiven after five years

 

Benefits and Qualifications Include:

  • Annual income cannot exceed 80% of the median income in applicant’s purchase area
  • Purchase price must be $371,936 or lower
  • Purchased home must be principal residence
  • Cannot be used for new construction home
  • At least one borrower must complete a homebuyer education course
  • Funding is limited and available only on a first-come, first-served basis

To Apply: If you think you could qualify, you may want to contact a local lender and inquire about how to proceed.

Who Is Considered a First-Time Homebuyer in Arizona?

For most programs offered in Arizona, like elsewhere in the country, applicants are considered first-time homebuyers if they haven’t owned a principal home for at least the past three years.

It’s a good idea, though, to be clear on each program’s specific eligibility standards before you start the application process.

Federal Programs for First-Time Homebuyers

Several federal government programs are designed for people who have low credit scores or limited cash for a down payment. Although most of these programs are available to repeat homeowners, like state programs, they can be especially helpful to people who are buying a first home or who haven’t owned a home in several years.

The mortgages are generally for single-family homes, two- to four-unit properties that will be owner occupied, approved condos, townhomes, planned unit developments, and some manufactured homes.

 

Remember that the Arizona state and county programs offer many of these same loans, along with that forgivable second loan for a down payment or closing costs. And the cost of mortgage insurance may be lower. So if you meet the income limits, that might be the way to go.

Federal Housing Administration (FHA) Loans

The FHA, which is part of the U.S. Department of Housing and Urban Development (HUD), insures mortgages for borrowers with lower credit scores. Homebuyers choose from a list of approved lenders that participate in the program. Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers with FICO credit scores of 580 or higher. Those with scores as low as 500 must put at least 10% down.

Gift money for the down payment is allowed from certain donors and will be documented in a gift letter for the mortgage.

 

FHA loans always require mortgage insurance: a 1.75% upfront fee and annual premiums for the life of the loan, unless you make a down payment of at least 10%, which allows the removal of mortgage insurance after 11 years. You can learn more about FHA loans  in general and loan limits by state or county.

Freddie Mac Home Possible Mortgages

Very low- and low-income borrowers may make a 3% down payment on a Home Possible mortgage. These loans allow various sources for down payments, including co-borrowers, family gifts, employer assistance, secondary financing, and sweat equity.

The Home Possible mortgage is for buyers who have a credit score of at least 660. Once you pay 20% of your loan, the Home Possible mortgage insurance will be canceled, which will lower your mortgage payments.

Fannie Mae HomeReady Mortgages

Fannie Mae HomeReady Mortgages allow down payments as low as 3% for low-income borrowers. Applicants generally need a credit score of at least 620; pricing may be better for credit scores of 680 and above. Like the Freddie Mac program, HomeReady loans allow flexibility for down payment financing, such as gifts and grants.

For income limits, a comparison to an FHA loan, and other information, go to this Fannie Mae site.

Fannie Mae Standard 97 LTV Loan

The conventional 97 LTV loan is for first-time homebuyers of any income level who have a credit score of at least 620 and meet debt-to-income criteria. The 97% loan-to-value mortgage requires 3% down. Borrowers can get down payment and closing cost assistance from third-party sources.

Department of Veterans Affairs (VA) Loans

Active-duty members of the military, veterans, and eligible surviving spouses may apply for loans backed by the Department of Veterans Affairs. VA loans, to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment. Most borrowers pay a one-time funding fee that can be rolled into the mortgage.

Native American Veteran Direct Loans (NADLs)

Eligible Native American veterans and their spouses may use these no-down-payment loans to buy, improve, or build a home on federal trust land. The VA is the direct lender on NADLs and charges a funding fee.

U.S. Department of Agriculture (USDA) Loans

No down payment is required on these loans to moderate-income borrowers that are guaranteed by the USDA in specified rural areas. Borrowers will pay an upfront guarantee fee and an annual fee that serves as mortgage insurance.

The USDA also issues direct loans to low- and very low-income people. Head here for income and property eligibility.

HUD Good Neighbor Next Door Program

This program helps police officers, firefighters, emergency medical technicians, and teachers qualify for mortgages in the areas they serve. Borrowers can receive 50% off a home in what HUD calls a “revitalization area.” They must live in the home for at least three years.

First-Time Homebuyer Stats for 2022

Ever wonder where you fit amid the mix of buyers who are out there shopping for their first home? Here are some nationwide stats from the National Association of Realtors (NAR) 2021 Profile of Home Buyers and Sellers:

Percentage of buyers who are first-time buyers: 34%

 

Median household income of first-time buyers: $86,500

 

Type of home purchased by first-time buyers:

  • Detached single-family home: 80%
  • Townhouse/rowhouse: 9%
  • Condo/apartment (five or more units): 1%
  • Duplex/condo/apartment (two to four units): 2%
  • Other: 8%

Median home price for first-time homebuyers: $252,000

 

Median down payment for first-time homebuyers: 7%

 

Median age of first-time homebuyers: 33

 

Relationship status for first-time homebuyers:

  • Married: 50%
  • Single females: 20%
  • Unmarried couples: 17%
  • Single males: 11%

First-time buyers with kids:

  • No children: 70%
  • One child: 15%
  • Two children: 11%
  • Three or more children: 5%

Additional Financing Tips for First-Time Homebuyers

In addition to federal and state government-sponsored lending programs, there are other financial strategies that may help you become a homeowner. Some examples:

  • Traditional IRA withdrawals. The IRS allows qualifying first-time homebuyers a one-time, penalty-free withdrawal of up to $10,000 from their IRA if the money is used to buy, build, or rebuild a home. The IRS considers anyone who has not owned a primary residence in the past three years a first-time homebuyer. You will still owe income tax on the IRA withdrawal. If you’re married and your spouse has an IRA, they may also make a penalty-free withdrawal of $10,000 to purchase a home. The downside, of course, is that large withdrawals may jeopardize your retirement savings.
  • Roth IRA withdrawals. Because Roth IRA contributions are made with after-tax money, the IRS allows tax- and penalty-free withdrawals of contributions for any reason as long as you’ve held the account for five years. You may also withdraw up to $10,000 in earnings from your Roth IRA without paying taxes or penalties if you are a qualifying first-time homebuyer and you have had the account for five years. With accounts held for less than five years, homebuyers will pay income tax on earnings withdrawn.
  • 401(k) loans. If your employer allows borrowing from the 401(k) plan that it sponsors, you may consider taking a loan against the 401(k) account to help finance your home purchase. With most plans, you can borrow up to 50% of your 401(k) balance, up to $50,000, without incurring taxes or penalties. You pay interest on the loan, which is paid into your 401(k) account. You usually have to pay back the loan within five years, but if you’re using the money to buy a house, you may have up to 15 years to repay.
  • State and local down payment assistance programs. Usually offered at the regional or county level, these programs provide flexible second mortgages for first-time buyers looking into how to afford a down payment.
  • The mortgage credit certificate program. First-time homeowners and those who buy in targeted areas can claim a portion of their mortgage interest as a tax credit, up to $2,000. Any additional interest paid can still be used as an itemized deduction. To qualify for the credit, you must be a first-time homebuyer, live in the home, and meet income and purchase price requirements, which vary by state. If you refinance, the credit disappears, and if you sell the house before nine years, you may have to pay some of the tax credit back. There are fees associated with applying for and receiving the mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh these fees.
  • Your employer. Your employer may offer access to lower-cost lenders and real estate agents in your area, as well as home buying education courses.
  • Your lender. Always ask your lender about any first-time homebuyer grant or down payment assistance programs available from government, nonprofit, and community organizations in your area.

 

The Takeaway

Being a first-time homebuyer can be especially challenging during a seller’s market, but if you can qualify for one of the many homebuyer programs in Arizona, or a federal program, you may be able to achieve your goal.

While you’re considering your options, keep in mind that borrowers who go with a mortgage from a private lender don’t necessarily have to come up with a 20% down payment. (And most buyers don’t.)

FAQ

Should I take first-time homebuyer classes?

Yes! Good information is key to a successful home-buying experience for anyone, but especially for newcomers, who can easily be overwhelmed by the jargon, technicalities, and magnitude of applying for a mortgage and purchasing a home. First-time homebuyer classes can help. Indeed they are required for some government-sponsored loan programs.

Check with your lender, real estate agent, local nonprofit housing advocacy groups, and state housing finance agency for programs in your area.

Do first-time homebuyers with bad credit qualify for homeownership assistance?

Often they do. Many government and nonprofit homeowner assistance programs are available to people with low credit scores. And often, interest rates and other loan pricing are competitive with those of loans available to borrowers with higher credit scores. That said, almost any lending program has credit qualifications. That’s why it’s important to take all possible steps to improve your credit standing before you go house hunting.

Is there a first-time homebuyer tax credit in Arizona?

Yes. First-time buyers in Arizona can apply for the mortgage credit certificate program, which allows borrowers to claim a portion of their annual mortgage interest as a federal credit every year.

Is there a first-time homebuyer assistance program for veterans in Arizona?

VA-backed home loans are available nationwide to eligible service members, veterans, and eligible surviving spouses. If you’re a veteran and you and/or your spouse are Native American, you may qualify for a VA direct loan. Arizona’s Home in Five Advantage program also offers special benefits for service members and veterans.

What credit score do I need for first-time homebuyer assistance in Arizona?

Most programs in Arizona require a score of 580 to 680, but some will accept a lower score. And some programs use criteria other than credit scores to determine a borrower’s eligibility.

What is the average age of first-time homebuyers?

The typical first-time buyer is 33, NAR says. First-time buyers make up 34% of all homebuyers nationwide and 34% homebuyers in the West.

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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

 

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