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Mortgages 101 · The Arizona edition

Everything you should know before you get a mortgage.

How loans actually work, what lenders really check, every major loan type, and the Arizona down payment assistance programs most buyers never hear about — in plain English, with real 2026 numbers.

The foundation

How a mortgage actually works

A mortgage is a loan secured by the home itself. You borrow the purchase price minus your down payment, and repay it in equal monthly installments over a set term — most commonly 30 years, sometimes 15 or 20.

The magic (and the trap) is amortization. Every payment is identical, but its composition shifts: in year one, most of it is interest; by the later years, almost all of it is principal. That is why extra principal payments early in the loan punch so far above their weight.

Meanwhile you build equity from two directions at once — every principal dollar you pay down, plus whatever the home appreciates. Equity is what turns a house from a monthly bill into the largest wealth-building asset most families ever own.

A concrete example

Borrow $400,000 at 6.75% for 30 years and the principal-and-interest payment is about $2,594/mo. In the very first payment, roughly $2,250 is interest and only ~$344 pays down the loan. By year 15 the split is near even; by year 25 it has flipped.

Rates move that number hard: the same loan at 6.25% is ~$2,463; at 7.25% it is ~$2,729. A 1% rate difference ≈ $266/mo here — roughly $50,000 of buying power. That is why your credit profile and loan choice matter more than any list-price negotiation.

PITI and friends

Inside your monthly payment

Lenders call it PITI — principal, interest, taxes, insurance. Any calculator showing only the first two is quietly lowballing your real cost of ownership.

Principal

The part of the payment that pays down what you actually borrowed. Early in the loan it is a small slice; over the years it grows until it dominates the payment.

Interest

What the lender charges for the money. Calculated on your remaining balance, which is why it shrinks every month as principal is paid down.

Property taxes

Usually collected monthly into an escrow account and paid to the county for you. Arizona's effective property tax rates are among the lower ones nationally — commonly in the 0.5–0.7% range of home value per year, varying by county and district.

Homeowners insurance

Also typically escrowed. Lenders require coverage on the home; the premium depends on the property, location, and coverage you choose.

Mortgage insurance (when it applies)

Conventional loans with less than 20% down carry PMI, which can be removed once you reach enough equity. FHA loans carry their own mortgage insurance (MIP) with different removal rules. VA loans have none.

HOA dues (when they apply)

Not part of the mortgage itself, but underwriters count them in your housing cost — and so should you.

The underwriter's checklist

The five things every lender checks

Debt-to-income ratio (DTI)

All your monthly debt payments divided by gross monthly income. Many programs are comfortable up to roughly 43–50% total DTI depending on the loan and your file. Lower DTI = more room, better pricing.

Credit score & history

Conventional loans generally start around 620. FHA allows 580 for 3.5% down (and sometimes lower with 10% down). VA has no official minimum, though most lenders set one. A stronger score mostly buys you a better rate.

Income & employment

Two years of stable, documentable income is the classic yardstick. W-2, self-employed, 1099, and retirement income are all workable — they are just documented differently.

Assets & reserves

Down payment, closing costs, and ideally something left over. Gift funds from family and DPA funds are allowed on most programs when documented correctly.

Loan-to-value ratio (LTV)

Loan amount divided by home value. Higher down payment = lower LTV = less risk to the lender, which shows up as better pricing and less (or no) mortgage insurance.

None of these is pass/fail alone

Underwriting weighs the whole file. Strong reserves can offset a higher DTI; a bigger down payment can offset a thinner credit history. This is exactly where an advisor earns their keep — structuring your file so its strengths carry its weaknesses.

Pick your lane

The five loan types, honestly compared

Conventional

The mainstream choice

Down payment

From 3% (first-time programs) or 5% standard

Credit

Typically 620+

Mortgage insurance

PMI under 20% down — cancellable at ~20–22% equity

Backed by Fannie Mae / Freddie Mac rules rather than a government agency. Pricing is credit-sensitive: the better your score, the better this option usually looks.

Best for: Steady credit and income; buyers who want mortgage insurance that eventually goes away.

FHA

Flexible credit entry point

Down payment

3.5% with a 580+ score

Credit

580+ common (500–579 possible with 10% down at some lenders)

Mortgage insurance

Upfront MIP (1.75%) plus monthly MIP; usually stays for the life of the loan under 10% down

Insured by the Federal Housing Administration. The trade-off for the flexibility is mortgage insurance that typically does not fall off — many FHA buyers later refinance into conventional once equity and credit improve.

Best for: First-time buyers, thinner or rebuilding credit, higher DTI files.

VA

For those who served

Down payment

0% down for eligible borrowers

Credit

No official minimum; lender overlays commonly ~580–620

Mortgage insurance

No monthly mortgage insurance; one-time funding fee (waived with service-connected disability)

Guaranteed by the Department of Veterans Affairs. Frequently the strongest option available when you qualify: zero down, no monthly MI, and competitive rates.

Best for: Eligible veterans, active-duty service members, and certain surviving spouses.

USDA

Zero down, outside the core metro

Down payment

0% down

Credit

Typically 640+ for streamlined approval

Mortgage insurance

Upfront guarantee fee (1%) plus modest annual fee — cheaper than FHA MIP

Has both geographic eligibility (the property) and household income limits (roughly 115% of area median). Towns on the edges of metro Phoenix and Tucson often qualify.

Best for: Moderate-income buyers in USDA-eligible areas — more of Arizona qualifies than most people expect.

Jumbo

Above the conforming line

Down payment

Commonly 10–20%

Credit

Typically 700+

Mortgage insurance

Varies by lender

Not sold to Fannie/Freddie, so each lender sets its own rules — expect fuller documentation and larger reserve requirements.

Best for: Loan amounts above the 2026 conforming limit of $832,750.

The fine print that moves money

Rates, terms, and points

Fixed vs. adjustable

A fixed rate never changes — the 30-year fixed is the American default for a reason. An ARM (say, a 5/6 ARM) holds a lower intro rate for 5 years, then adjusts every 6 months within caps. ARMs can make sense when you are confident you will sell or refinance within the intro window; they are a gamble if you are stretching to qualify.

15 vs. 30 years

A 15-year loan carries a lower rate and slashes lifetime interest, but the required payment is much higher. A popular middle path: take the 30-year for flexibility and pay it like a 15 when life allows — you keep the option to drop back to the lower required payment anytime.

Discount points

One point = 1% of the loan paid upfront for a lower rate. The only question that matters is break-even: if the point costs $4,000 and saves $80/mo, you need 50 months to win. Keep the loan longer than that, points pay; sell or refinance sooner, they don’t.

Where the lines are

2026 loan limits in Arizona

Limit2026 amountWhat it means
Conforming (conventional)$832,750FHFA baseline for a single-family home. Every Arizona county sits at the baseline — above this, you are in jumbo territory.
FHA — most of Arizona$541,250The FHA “floor” that applies to most Arizona counties, including Pima (Tucson).
FHA — Maricopa & Pinal counties$557,750FHA limits are set by metro area, and Pinal County (Casa Grande, Apache Junction) is part of the Phoenix–Mesa metro — so it shares Maricopa’s higher ceiling. Not to be confused with Pima County (Tucson), which uses the standard limit above.

Limits are for one-unit properties and reset annually; 2–4 unit properties have higher limits. VA loans have no statutory limit for borrowers with full entitlement.

The 20% myth

Down payments: what you actually need

The idea that you need 20% down keeps more Arizonans renting than any other single belief. The real minimums: 3% on first-time conventional programs, 3.5% on FHA, 0% on VA and USDA.

Twenty percent buys you one thing — no PMI. But PMI on a strong file can run well under $100–200/mo and disappears at ~20–22% equity, while waiting five extra years to save can cost you five years of appreciation and principal paydown. The smarter question is not “what is the minimum?” but “what payment, cash to close, and leftover cushion still let me sleep at night?”

And your down payment does not have to be all yours: documented gift funds from family are allowed on all major programs, and Arizona runs several genuine down payment assistance programs — covered next.

What DPA really is

Most Arizona DPA arrives as a soft second mortgage: no monthly payment, no interest, forgiven after a set number of years as long as you keep the home as your primary residence. Sell or refinance early and the unforgiven portion is repaid from your equity.

The honest trade-off: DPA first mortgages usually carry a somewhat higher rate than the open market. Whether the assistance beats the rate premium is pure math on your specific numbers — sometimes yes, sometimes no. Any advisor who answers without running both is guessing.

Arizona's best-kept secrets

Arizona down payment assistance programs

These are the real, currently operating programs — verified against their official program sites as of July 2026. Numbers change periodically, so treat these as the shape of each program and confirm current terms when you apply.

HOME+PLUS (Home Plus)

Arizona Industrial Development Authority — statewide

Where
Every county, city, and zip code in Arizona
Assistance
Up to ~4–5% of the loan for down payment & closing costs, varying by loan type and option chosen
Income cap
$155,386 borrower annual income (statewide, as of April 2026)
Structure
0% interest, no-payment soft second — fully forgiven after 5 years (60 months)
First-time only?
No
Education
One borrower completes a homebuyer education course before closing

The state's flagship program, pairing a 30-year fixed first mortgage (FHA, VA, USDA, or conventional) with the assistance. Funding is continuous — it does not run out mid-year. Sell or refinance within the 60 months and the assistance is repaid; the Arizona IDA does not subordinate it.

Arizona Is Home

Arizona Industrial Development Authority — rural & non-metro

Where
All Arizona counties except Maricopa and Pima (and excluding Chino Valley)
Assistance
4% down payment assistance
Rate
Below-market 30-year fixed first mortgage
Funding
Fixed annual allocation — pauses when exhausted, resumes when replenished

Aimed at buyers outside the two big metros, and unusually generous when funded: the below-market first-mortgage rate removes the usual DPA rate trade-off. Because funding is capped, timing matters — check availability early.

Home in Five Advantage

Phoenix & Maricopa County IDAs

Where
Anywhere in Maricopa County
Assistance
Up to 6% for down payment & closing costs (option-dependent)
Income cap
$153,440 annual income
Credit / DTI
640+ FICO · DTI up to 50%
Structure
Choice of a forgivable deferred second or an amortizing (repayable) second for more assistance
Extras
Additional assistance has been offered for veterans, active military, K-12 teachers, and first responders
Education
8-hour course through an Arizona-based HUD-approved counseling agency

Running since 2012 with 25,000+ buyers helped. No purchase-price cap, new or existing homes, condos, and townhomes all qualify; you must occupy within 60 days of closing, and refinances are not eligible. Not restricted to first-time buyers.

Pima Tucson Homebuyer's Solution

Pima County & City of Tucson IDAs

Where
All of Pima County, including Tucson
Assistance
Up to ~5% of the purchase price, with selectable assistance levels
Income cap
$146,503 household income
Credit / DTI
640+ FICO · DTI up to 45% (exceptions possible)
Structure
Silent second — no interest, no payments, forgiven monthly across the first 5 years
First-time only?
No
Education
Homebuyer education course required

The Tucson-metro counterpart to Home in Five, pairing FHA, VA, USDA, or conventional first mortgages with forgivable assistance. The monthly forgiveness schedule is friendlier than cliff-style forgiveness — every month you stay, a slice is permanently forgiven.

Also worth knowing: the City of Tucson and some nonprofits run smaller, income-targeted DPA that can occasionally stack with these programs, and USDA/VA eligibility can make assistance unnecessary altogether. Programs update their income caps and assistance tiers throughout the year — an advisor who works with these daily will know the current numbers and which combination actually prices out best for your file.

Offer to keys

The process, step by step

1

Get pre-approved

A real pre-approval (income, assets, and credit reviewed) tells you your true price range and makes your offers credible. In a competitive Arizona market, listing agents often will not take an offer seriously without one.

2

Shop with your numbers

House-hunt by monthly payment, not just list price. Two same-priced homes can carry very different payments once taxes and HOA are in the picture.

3

Offer & contract

Once a seller accepts, the clock starts: earnest money is deposited, inspections happen, and your lender gets the contract to begin the formal loan.

4

Appraisal & underwriting

The lender orders an independent appraisal and an underwriter verifies everything in your file. Answer document requests fast — this is where most delays are born.

5

Clear to close

Underwriting signs off, you receive the Closing Disclosure at least 3 business days before signing, and you do a final walkthrough of the home.

6

Closing day

Sign, fund, record — in Arizona, closings run through escrow/title companies. Once the deed records, the keys are yours.

Typical timeline from accepted offer to keys: 30–45 days. The single biggest thing you control is document turnaround — same-day responses to your lender can save a week over the life of the transaction.

The other cash number

Closing costs, demystified

Beyond the down payment, budget roughly 2–4% of the purchase price for closing costs in Arizona. The big line items: lender fees, title and escrow charges, the appraisal, prepaid property taxes and insurance, and the initial escrow account funding.

Arizona-specific good news: we are an escrow state with no state transfer tax on residential deeds, which keeps our closing costs on the friendlier end nationally.

Ways to cover them

  • Seller concessions — negotiated credits from the seller, capped by loan type (3–9% conventional depending on down payment; 6% FHA; 4% VA).
  • Lender credits — a slightly higher rate in exchange for the lender paying costs. The reverse of points; same break-even math.
  • DPA funds — the Arizona programs above can be applied to closing costs, not just the down payment.
  • Gift funds — allowed for closing costs on major programs when documented.

Speak the language

Glossary: the terms that matter

Amortization
The schedule that splits each payment between interest and principal, gradually retiring the loan over the term.
APR
Annual Percentage Rate — the interest rate plus certain loan costs expressed as a yearly rate, designed to make offers easier to compare.
Appraisal
An independent professional opinion of the home’s value, required by the lender to make sure the property supports the loan.
Closing Disclosure (CD)
The final, binding statement of your loan terms and costs — you must receive it at least three business days before closing.
DTI
Debt-to-income ratio: monthly debt payments ÷ gross monthly income.
Earnest money
A good-faith deposit made with your offer, credited back to you at closing.
Escrow account
The account your servicer uses to collect and pay property taxes and insurance as part of your monthly payment.
LTV
Loan-to-value: loan amount ÷ home value. 80% LTV or below avoids PMI on conventional loans.
MIP / PMI
Mortgage insurance premiums — FHA’s version (MIP) and the conventional version (PMI). They protect the lender, not you.
Points
Optional upfront fee (1 point = 1% of the loan) paid to buy a lower rate. Worth it only if you keep the loan past the break-even point.
Pre-approval
A lender’s conditional commitment based on verified credit, income, and assets — much stronger than a pre-qualification.
Rate lock
An agreement that freezes your interest rate for a set window (commonly 30–60 days) while your loan closes.
Soft second / silent second
A second mortgage with no payment and (often) no interest, used by DPA programs — usually forgiven over time or repaid when you sell or refinance.
Underwriting
The lender’s formal verification of your entire file — income, assets, credit, and the property — before approving the loan.

Straight answers

Frequently asked questions

No — this is the most expensive myth in home buying. Conventional loans start at 3% down for qualifying first-time buyers, FHA at 3.5%, and VA and USDA at 0%. Twenty percent avoids PMI, but waiting years to save it often costs more than PMI ever would.

Knowledge → numbers

Now see what all of this means for you.

Sixty seconds of questions, zero credit impact, and one Arizona advisor who runs your real numbers — including whether any of these assistance programs actually beats the open market for your file.

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About the numbers on this page

Program details verified against official sources as of July 2026: the Arizona Industrial Development Authority / homeplusaz.com (HOME+PLUS and Arizona Is Home), homein5advantage.com and the Maricopa County IDA (Home in Five Advantage), the Pima IDA (Pima Tucson Homebuyer’s Solution), and FHFA / HUD announcements for 2026 loan limits. Income caps, assistance percentages, and program availability change during the year. This page is education, not an offer of credit, a rate quote, or financial advice — your eligibility and best option depend on your complete file.