Arizona Conventional Loan Guide 2026

If you are buying a home in the Phoenix metro area in 2026, there is a very good chance you will use a conventional loan. Conventional loans now account for roughly 60 to 65 percent of all purchase transactions in Arizona — far outpacing FHA, VA, and USDA products combined. Yet for all their prevalence, conventional loans are widely misunderstood. Buyers routinely confuse them with government-backed products, overestimate how much down payment they need, and underestimate how dramatically credit scores affect the rate they are offered.

This guide covers everything a Phoenix area buyer needs to know about conventional loans in 2026: what makes a loan "conventional," the 2026 conforming loan limit for Maricopa and Pinal counties, the full comparison against FHA and VA, how PMI works and how to get rid of it, how your credit score translates into real rate differences, debt-to-income guidelines under Fannie Mae and Freddie Mac's automated underwriting systems, Arizona-specific appraisal nuances in our non-disclosure state, the new construction and condo considerations unique to our market, and exactly what to expect at the closing table.

What Is a Conventional Loan?

A conventional loan is simply any mortgage that is not insured or guaranteed by a federal government agency. This distinguishes it from FHA loans (Federal Housing Administration), VA loans (Department of Veterans Affairs), and USDA loans (U.S. Department of Agriculture). Conventional loans are originated by private lenders — banks, credit unions, mortgage companies — and sold into the secondary market.

Within the conventional category, there are two sub-types that matter to most buyers:

Conforming Loans

A conforming loan meets the underwriting guidelines established by Fannie Mae and Freddie Mac — the two government-sponsored enterprises (GSEs) that dominate the secondary mortgage market. "Conforming" means the loan conforms to their standards on loan amount, borrower credit profile, property type, and documentation requirements. Because Fannie and Freddie will purchase these loans from lenders, lenders can offer competitive rates and terms. The vast majority of conventional loans are conforming.

The key conforming limits for 2026 in Arizona's primary population counties are:

• 1-unit (single family): $806,500
• 2-unit (duplex): $1,032,650
• 3-unit (triplex): $1,248,150
• 4-unit (fourplex): $1,551,250

These limits are set annually by the Federal Housing Finance Agency (FHFA) based on national home price index changes. Maricopa County and Pinal County are at the national baseline — they are not designated high-cost areas like coastal California, meaning the limits mirror the standard conforming ceiling rather than an elevated local limit.

Non-Conforming / Jumbo Loans

Any conventional loan that exceeds the conforming limit — above $806,500 for a single-family home in Maricopa or Pinal County — becomes a jumbo loan. Jumbo loans cannot be purchased by Fannie Mae or Freddie Mac, so lenders must either keep them on their balance sheets (portfolio lending) or sell them to private investors. This creates a different risk profile: jumbo rates may be higher or lower than conforming depending on market conditions, and qualification requirements are generally more stringent — larger down payments (often 10–20%), stronger credit profiles (typically 700+, often 720+), and more documentation. Jumbo is a separate and extensive topic beyond the scope of this guide, which focuses on conforming conventional loans.

Why Conventional Loans Dominate in Arizona

Arizona's homebuyer profile skews toward move-up buyers, investors, second-home purchasers, and high-income earners in the technology and healthcare sectors. All of these segments tend to have the credit scores, down payments, and income profiles that make conventional loans the best fit. The Phoenix metro's robust labor market — anchored by TSMC Fab 21 in North Phoenix, Intel's Chandler campus, and a diversified healthcare and financial services sector — produces the borrower profiles that benefit most from conventional loan pricing. FHA's permanent mortgage insurance and VA's funding fee make conventional a better economic choice for anyone who qualifies at 680+ credit.

Conventional vs. FHA vs. VA — Detailed Comparison

Choosing the right loan type is one of the most consequential decisions in your home purchase. It affects your monthly payment, your upfront costs, how competitive your offer looks in a multiple-offer situation, what properties you can buy, and your long-term wealth position. Here is the comprehensive breakdown:

When FHA Actually Wins

Despite conventional loans being the most common product, there are scenarios where FHA is the smarter choice. If your credit score is between 580 and 639, FHA may offer a meaningfully lower rate than conventional — the conventional rate add-ons at that credit tier can push the all-in cost higher than FHA even with its permanent MIP. Similarly, if your DTI is above 45% and you have difficulty getting DU approval on conventional, FHA's automated underwriting system (TOTAL Scorecard) may be more lenient. And if you are using down payment assistance through Arizona's ADOH HOME Plus program, FHA is a common pairing because of the low 3.5% down requirement.

When VA Dominates

If you are an eligible veteran or active-duty service member, VA loans are almost always the superior choice financially. Zero down payment with no monthly PMI is an extraordinary benefit. The VA funding fee (2.15% for first use with 0% down, or 3.3% for subsequent use) sounds steep, but compare that to years of PMI payments on a conventional loan at 90%+ LTV. Veterans with service-connected disabilities rated 10% or higher receive a waiver of the funding fee entirely — meaning zero down, zero PMI, zero funding fee. Arizona has a significant military population (Luke AFB, Williams Gateway, Fort Huachuca), so VA lending expertise is widespread in the Phoenix market.

Down Payment Options in Arizona

One of the most durable myths in homebuying is that you need 20% down to buy a home. This has not been true for decades. Here is a full breakdown of your conventional down payment options in 2026:

3% Down — Fannie Mae 97, HomeOne, Home Possible

Fannie Mae's Standard 97 and HomeOne programs allow 3% down payments on single-family homes. Key requirements: at least one borrower must be a first-time homebuyer (defined as not having owned a primary residence in the past three years — so this is not limited to true "first-timers"), the property must be a single-family home or condo, and the loan must be a 30-year fixed rate. Freddie Mac's Home Possible program offers similar terms. Both programs require homebuyer education for all first-time buyers, which is available online through approved providers for a nominal fee.

At 3% down, your PMI premium will be at the high end of the range — typically 0.8% to 1.2% annually depending on your credit score. On a $600,000 home, that is $4,800 to $7,200 per year in PMI alone. This is the main trade-off for the low down payment entry point.

5% Down — Most Common Entry Point

Five percent down is the most popular down payment level for Phoenix metro buyers using conventional financing. It is low enough to preserve cash, while keeping PMI costs more manageable than at 3%. At 5% down with a 740 credit score, you might see PMI around 0.4% to 0.6% annually. On a $600,000 home at 95% LTV, the loan amount is $570,000, and 0.5% PMI is $2,850 per year ($237.50/month) — significant but tolerable in a market with strong appreciation potential.

10% Down — Significant PMI Reduction

Moving from 5% to 10% down dramatically cuts your PMI cost and may also improve your interest rate through better loan-level price adjustments (LLPAs). At 90% LTV with a 740 credit score, PMI might run 0.2% to 0.4% annually. On a $600,000 home with $60,000 down, that is $1,080 to $2,160 per year in PMI — and you're on track to reach 80% LTV (PMI removal threshold) several years sooner than you would at 5% down.

20% Down — The PMI Elimination Threshold

Putting 20% down eliminates PMI entirely, which simplifies your payment and removes a recurring cost. On a $700,000 home, 20% down is $140,000 — a meaningful number that many buyers, especially in Arizona's appreciation-driven market, struggle to accumulate while renting. That said, 20% down puts your offer in the strongest position in competitive multiple-offer scenarios and typically qualifies you for the best loan-level pricing.

However, putting 20% down is not always the right financial decision. If you can put 10% down, pay PMI for 3 to 4 years until appreciation + amortization gets you to 80% LTV, and invest the other 10% in an index fund returning 7–8% annually, the math may favor the lower down payment. This is a personal finance question worth discussing with a financial advisor, not a one-size-fits-all rule.

Down Payment Gift Funds

Conventional loans allow 100% of the down payment to come from a gift from a family member, for a single-family primary residence. The donor must provide a signed gift letter stating the funds are a gift and not a loan, and the lender will trace the source of funds. For investment properties and second homes, some lender-specific own-funds requirements may apply. The gift rules for conventional are actually quite flexible — more so than in previous years when a 5% minimum borrower contribution was commonly required.

ADOH HOME Plus — Arizona's Down Payment Assistance

Arizona's Department of Housing (ADOH) offers the HOME Plus program, which provides a 3% to 5% forgivable down payment assistance grant for Arizona home purchases. Key eligibility: 640+ credit score, $122,100 maximum household income, no dollar limit on purchase price (but must use a conforming loan product), available statewide, and the DPA is forgiven over three years as long as you stay in the home. HOME Plus works with FHA, VA, and conventional loan products — including Fannie Mae HFA Preferred and Freddie Mac HFA Advantage. This is an excellent resource for moderate-income buyers in the Phoenix metro who have the income to qualify for a mortgage but are struggling to accumulate down payment while paying high rents.

PMI — Private Mortgage Insurance Deep Dive

Private mortgage insurance protects the lender — not you — if you default on your loan. It is required on conventional loans where the down payment is less than 20% (i.e., LTV above 80%). Understanding how PMI works, what it costs, and how to eliminate it is essential knowledge for any Phoenix buyer putting down less than 20%.

PMI Cost Ranges

PMI is priced based on three primary variables: your loan-to-value ratio (the lower the LTV, the lower the PMI), your credit score (the higher the score, the lower the PMI), and the loan term. Annual PMI premiums range from approximately 0.2% to 1.5% of the loan amount. This is a wide range — your individual scenario will fall somewhere within it based on those factors.

Note: Figures above are illustrative estimates based on 2026 market pricing for 30-year fixed loans. Actual PMI quotes vary by lender and insurer. Monthly figures use loan amounts of $600,000 (95% LTV on $631,578 purchase) and $540,000 (90% LTV on $600,000 purchase) for consistency.

Federal Homeowners Protection Act — PMI Cancellation Rights

The Homeowners Protection Act (HPA) of 1998 establishes your federal rights regarding PMI cancellation on conforming conventional loans. There are two key provisions:

Automatic Cancellation: The lender must automatically cancel PMI when your loan balance, based on the original amortization schedule, reaches 78% of the original purchase price. You do not need to do anything — it should happen automatically. However, you must be current on payments for this to trigger.

Borrower-Requested Cancellation: You have the right to request PMI cancellation once your loan balance reaches 80% of the original purchase price based on scheduled payments. The lender may require that you: (a) have a good payment history, (b) certify that there is no subordinate lien on the property, and (c) at lender discretion, provide evidence that the property has not declined in value (typically a new appraisal).

Cancellation Based on Appreciated Value

Here is where Arizona's real estate market creates a major opportunity that many homeowners are missing. The HPA's 80% threshold is based on the original purchase price — but many lenders will allow PMI cancellation based on the current appraised value if you have owned the home for at least two years (some lenders require five years for the original purchase). Arizona's median home prices rose roughly 60% between 2019 and 2023. If you purchased a Phoenix-area home before 2022 with 5% to 10% down, there is an excellent chance your current loan balance represents well under 80% of what the home is worth today.

Action step: Call your loan servicer and ask about PMI removal based on current value. You will likely need to order a full appraisal (typically $500–$700 in the Phoenix market) and submit a formal PMI cancellation request. If the appraisal supports it, your lender should remove PMI — potentially saving you hundreds of dollars per month going forward.

PMI Alternatives — Single-Pay, LPMI, and Piggyback

Single-Pay PMI: Instead of paying PMI monthly, you pay the entire premium upfront at closing — either in cash or financed into the loan amount. This can make sense in a market with strong appreciation (you eliminate the ongoing cost) or when the seller is willing to contribute funds toward closing costs (you could use seller concessions to cover the single premium). The upfront cost is typically 1.5% to 3.5% of the loan amount as a one-time payment.

Lender-Paid PMI (LPMI): Your lender pays the PMI premium upfront and recoups it through a slightly higher interest rate on your loan — typically 0.25% to 0.5% higher than a standard rate. This makes sense if you plan to sell or refinance within 5 to 7 years, because you avoid the PMI monthly costs without committing to years of a higher rate. However, if you keep the loan long-term, LPMI is more expensive than standard monthly PMI because the rate premium never goes away (unlike PMI, which is cancelable).

80/10/10 Piggyback: Take an 80% first mortgage (avoiding PMI), a 10% second mortgage (either a HELOC or fixed-rate second), and put 10% down. The second mortgage typically carries a rate 1 to 2 percentage points above the first. This eliminates PMI entirely, but the combined payment may be higher than a single mortgage with PMI, depending on the second mortgage rate. The advantage: no PMI at any point, and the second can often be paid off faster if income allows.

Credit Score Impact on Mortgage Rate

Your credit score is the single most powerful variable affecting the interest rate you are offered on a conventional loan. The difference between a 760+ score and a 680 score can mean tens of thousands of dollars over the life of a loan — not just from the rate itself, but from compounding over 30 years.

Loan-level price adjustments (LLPAs) are Fannie Mae and Freddie Mac's system for pricing risk into mortgage rates. They are expressed as discount points added to your loan and are driven primarily by credit score and LTV. The practical effect is that different credit score bands receive meaningfully different rates from lenders.

Rate examples are illustrative for a 30-year fixed conventional loan at 80% LTV in July 2026. Actual rates vary by lender, day, and loan scenario. The rate differentials between score bands are more reliable data than the absolute rates shown.

How to Improve Your Credit Score Before Applying

If your score is below 740 and you have 3 to 6 months before you need to buy, there are actionable steps that can meaningfully improve your score:

• Pay down revolving balances: Credit utilization (balances vs. credit limits on credit cards) accounts for roughly 30% of your FICO score. Getting utilization below 30% on each card and below 10% overall can boost your score 20 to 40+ points within 30 to 60 days of the next statement cycle.
• Dispute inaccuracies: Request all three credit reports (AnnualCreditReport.com) and dispute any accounts that are inaccurate, duplicated, or showing the wrong payment status. Errors affect millions of Americans' scores.
• Do not open new credit: Each hard inquiry drops your score 3 to 5 points and new accounts lower your average account age. Avoid opening any new credit cards or taking out any loans for 6 months before mortgage application.
• Become an authorized user: If a family member has a credit card with a high limit and perfect payment history, being added as an authorized user can boost your score if that account's history is added to your file — even if you never use the card.
• Rapid rescore: Your mortgage lender can initiate a rapid rescore through the credit bureaus after you pay down balances or resolve errors. This updates your score in 3 to 5 business days rather than waiting for the next statement cycle — valuable if you are under contract and need a score bump quickly.

Debt-to-Income Guidelines

Debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward monthly debt obligations. It is one of the three primary qualification pillars for a mortgage (alongside credit score and down payment). Lenders calculate two DTI ratios:

Front-End DTI (Housing Ratio)

Your front-end DTI is your total monthly housing payment — principal, interest, property taxes, homeowners insurance, HOA dues, and PMI if applicable (collectively "PITIA") — divided by your gross monthly income. Fannie Mae and Freddie Mac do not impose a hard front-end limit through their automated underwriting systems, but many lenders use 28% as a guideline. Exceeding 28% front-end is not an automatic disqualifier, but it raises scrutiny.

Back-End DTI (Total Debt Ratio)

Back-end DTI adds all other recurring monthly debt obligations — car payments, student loans, credit card minimum payments, personal loans, alimony, child support — to your housing payment, divided by gross income. This is the number that Fannie Mae and Freddie Mac actually underwrite against.

Standard limits: For manually underwritten loans, the maximum is generally 36% without compensating factors, up to 45% with compensating factors. For loans run through Desktop Underwriter (DU, Fannie Mae's automated system) or Loan Product Advisor (LPA, Freddie Mac's system), the AUS can approve DTIs up to 50% with sufficient compensating factors such as excellent credit (740+), significant reserves (12+ months), or substantial equity/down payment. An AUS approval at 48% DTI with a 760 credit score and 12 months reserves is a real scenario — the machine weighs the totality of the risk profile rather than applying a single DTI ceiling.

Student Loan Treatment — A Critical Issue for AZ Buyers

Arizona's growing population includes a large cohort of millennial and Gen Z buyers carrying student loan debt. How that debt is counted matters enormously:

• Income-driven repayment (IBR/PAYE/SAVE): If your current monthly payment under an income-driven plan is greater than $0, Fannie Mae uses the actual documented payment. If your IBR payment is currently $0 (because your income is temporarily low or you qualify for a $0 payment), Fannie Mae uses the greater of 1% of the outstanding balance or the fully-amortizing payment.
• Standard repayment: The actual documented monthly payment is used.
• In deferment or forbearance: Fannie Mae requires lenders to use 1% of the outstanding balance as the monthly payment if no payment is due and the forbearance does not document the post-forbearance payment.

For a buyer with $120,000 in student loans on an IBR plan with a $0 monthly payment, Fannie Mae would count $1,200/month in DTI even though you are paying nothing — this can be a significant qualification barrier. Strategies include switching to a standard repayment plan with a real documented payment that is less than 1% monthly, or working with a lender that has specific products for professionals (doctors, attorneys, pharmacists) with deferred professional school debt.

Self-Employed and 1099 Income in Arizona

Arizona's economy has a high concentration of independent contractors, business owners, and commission-based earners — particularly in real estate, technology consulting, and healthcare. Self-employed borrowers using conventional financing must document:

• Two years of personal federal tax returns (all schedules)
• Two years of business tax returns (1120-S for S-Corps, 1065 for partnerships, Schedule C for sole proprietors)
• A year-to-date profit and loss statement signed by a CPA (required by most lenders)
• Business bank statements (60–90 days)

Qualifying income for conventional self-employment is calculated as average net income from the two most recent tax years, with add-backs for non-cash items (depreciation, depletion, business use of home). If your income declined significantly from year 1 to year 2, lenders will use the lower figure — a declining income trend is a red flag that may result in a denial or approval at a lower loan amount.

A note on TSMC and the Deer Valley corridor: The TSMC Fab 21 complex in North Phoenix and the associated supply chain buildout has created a wave of high-income technology workers — many with RSU (restricted stock unit) compensation. RSU income is usable for qualifying if you have a two-year history of receiving it and the employer confirms continued vesting; lenders average the past two years of RSU income. Bonus income follows the same two-year average rule.

Appraisals in Arizona — The Non-Disclosure State Factor

One of the most distinctive aspects of real estate in Arizona is that it is a non-disclosure state. Arizona statute does not require the disclosure of the sale price in real estate transactions, meaning that sale prices are not recorded on deed documents or available in public county records. This is fundamentally different from most states, where anyone can look up what a home sold for through the county assessor or recorder.

What This Means for Appraisals

Arizona appraisers work exclusively from MLS data for sale price comparables. When you buy a home and it goes under contract, the sale price enters the MLS when the listing status changes to "sold" — but even then, the exact sale price is only visible to licensed real estate professionals with MLS access, not to the general public. This creates two practical consequences for buyers and their lenders:

Data availability is thinner: In a rapidly moving market — like Phoenix in 2021 and 2022, and the North Phoenix TSMC corridor in 2025 and 2026 — appraisers may struggle to find enough recent comparable sales to support an aggressive purchase price. The MLS data exists but is limited to what has actually closed and been entered into the system.

Appraisal gaps are a real risk in hot markets: An appraisal gap occurs when the appraiser determines the property's value is less than the contract purchase price. The lender will only lend against the appraised value — if the home appraises at $750,000 but you agreed to pay $780,000, you must either: renegotiate the price down to $750,000, bring an additional $30,000 in cash to closing (the "appraisal gap"), or walk away if the contract allows. Appraisal gap coverage clauses in offers became common during the 2021–2022 Phoenix frenzy and are still occasionally used in competitive situations today.

Appraisal Waivers — ACE and AVM

Fannie Mae's Automated Collateral Evaluation (ACE) program allows the lender to skip the traditional appraisal entirely for certain loan scenarios — typically low-LTV purchases and refinances where there is abundant data on the property. If DU returns an "appraisal waiver offer," the lender may use a desktop appraisal or no appraisal at all. This saves buyers $500 to $700 and two to three weeks of wait time. The catch: ACE waivers are more commonly available on refinances than purchases, and are most accessible at lower LTV ratios (below 80%). In competitive bidding situations, an appraisal waiver can actually help because it removes a contingency that sellers find risky.

Arizona Property-Specific Appraisal Issues

Several property features specific to Arizona can affect the appraisal and the lender's underwriting decision:

Post-tension slab construction: Most Phoenix-area homes built since the 1980s use post-tensioned concrete slab foundations rather than the poured concrete or wood-frame foundations common in other parts of the country. Post-tensioned slabs use steel cables under tension to prevent cracking in Arizona's expansive clay soils. Appraisers note slab type but post-tension is not itself a negative — it is standard. However, if the slab shows evidence of cable failure or significant cracking, lenders will require repair before closing. Critical note: post-tension slabs should NEVER be drilled into or cut without a structural engineer's approval — this is a disclosure item for renovation plans.

Swimming pools: Arizona pools are both an expectation and an appraisal challenge. Appraisers value pools in Phoenix-area homes, but the market adjustment ($20,000 to $40,000 in many submarkets) often falls short of the actual cost to build a pool ($50,000 to $80,000 for a new basic pool). Do not buy a home and plan to finance a pool into the purchase price — the appraisal will not support it at full replacement cost.

Caliche and soil conditions: Caliche — a hard calcium carbonate deposit found at various depths throughout Maricopa County — is noted by appraisers in some rural and semi-rural settings (Buckeye, Maricopa city, Queen Creek outskirts) where it affects excavation cost for pools, utilities, or additions. It does not typically affect loan approval, but it is an inspection item worth understanding.

Arizona-Specific Conventional Loan Considerations

New Construction and Builder-Affiliated Lenders

The Phoenix metro is one of the hottest new construction markets in the country, with major homebuilders including D.R. Horton, Pulte, Taylor Morrison, Toll Brothers, Meritage, and Lennar operating across the valley. Builders offer substantial incentives — sometimes $30,000 to $70,000 in upgrades, rate buydowns, or cash toward closing costs — contingent on using their affiliated lender. This creates a genuine dilemma: the rate buydown may result in a below-market rate for the first year or two, but the affiliated lender may have higher long-term pricing or less flexible underwriting than a competitive outside lender.

The practical advice: get pre-approved with an outside lender before visiting model homes. Use that outside quote as your baseline. Then evaluate the builder's total incentive package against what you would save by using your own lender. If the builder is offering a 2-1 buydown funded by the builder, that is real cash value regardless of who the lender is — make sure you are comparing total packages, not just interest rates.

Community Facilities Districts (CFDs) — The Tax Add-On in New Construction

One of the most overlooked costs in Arizona new construction is the Community Facilities District (CFD) or Special Improvement District (SID) assessment. Authorized under ARS Title 48, CFDs allow developers to issue bonds to fund infrastructure — roads, water, sewer, parks — and recover the cost through property tax assessments on homes in the district. These assessments run $500 to $3,000 or more per year and appear on your property tax bill as a separate line item on top of regular property taxes.

This matters enormously for DTI calculations. A home in a CFD community might have a property tax + CFD assessment that is significantly higher than what the appraiser's comps reflect, if those comps are from non-CFD communities. Always ask the builder's sales agent about CFD assessments and request the current bond amount, annual assessment, and expected payoff date. Lenders will include CFD assessments in the PITIA payment for DTI purposes — and some buyers have been surprised to find they qualify for less than they expected because of this add-on.

Key TSMC-corridor CFD communities to be aware of: many of the new master-planned communities in North Gateway (along Loop 303 and Happy Valley Road), North Deer Valley, and the Peoria/Surprise corridor carry CFD assessments. The area's rapid infrastructure buildout is substantially funded through these mechanisms.

HOA Warrantable Condos — A Phoenix-Specific Challenge

Scottsdale, Tempe, and downtown Phoenix have a significant condo market, ranging from older 1970s-1980s complexes to newer high-rise towers in Old Town Scottsdale and Downtown Phoenix. Not all of these are eligible for conventional Fannie/Freddie financing — a condominium project must meet "warrantability" standards to be eligible:

• No more than 15% of units delinquent on HOA dues (increased from the 15% threshold in 2021 guidance)
• No single entity (including the developer) owns more than 10% of all units (or 20% in smaller projects under specific conditions)
• At least 50% of units must be owner-occupied (primary or second homes) — exceptions exist for established projects
• No pending or threatened litigation involving the HOA that could affect the unit's value, habitability, or use
• The HOA's budget must allocate adequate reserves (10% of annual dues to reserves is a common guideline, though not a hard threshold)
• The project cannot be a hotel, timeshare, condo-hotel, or have mandatory rental pool participation

Non-warrantable condos require a portfolio lender that holds the loan on its balance sheet rather than selling to Fannie/Freddie — and portfolio lenders typically price non-warrantable condos at 0.5% to 1.5% higher rates. Before making an offer on any condo in the Phoenix metro, have your lender run a warrantability check — this can save you from falling in love with a property you cannot finance at competitive rates.

ARS §33-422 SPDS and Loan Implications

Arizona's Seller Property Disclosure Statement (SPDS) under ARS §33-422 requires sellers to disclose known material defects. When issues are disclosed — roof leaks, foundation problems, HOA disputes, water damage — the conventional loan appraiser will note these items in the appraisal report. The lender's underwriter reviews appraiser notes and may require repairs, holdbacks, or price reductions before closing. Unlike FHA's minimum property standards (which are more prescriptive), conventional lenders have more flexibility to accept a lower purchase price that reflects disclosed defects, as long as the appraiser's value opinion accounts for them.

The Dry Funding State and Closing Day

Arizona is a dry funding state, which means that mortgage funds must actually be wired to escrow and the escrow must be funded before the lender authorizes recording. Recording happens at the Maricopa County Recorder's office, and in Arizona, recording = closing = keys. This is in contrast to California and other "wet funding" states where recording and funding can occur on different days. The practical effect for Arizona buyers: your closing day is the day you get your keys, but only after your lender wires funds AND recording confirmation comes back from the county recorder. Closings in Maricopa County that record before the 5:00 PM cutoff are typically same-day; those that miss the cutoff may push to the next business day for key delivery even if documents were signed that day.

Rate Lock and Buydowns

Rate Lock Periods

A rate lock is your lender's commitment to hold a specific interest rate for a defined period, protecting you from market rate increases between application and closing. Standard rate lock options:

• 15-day lock: Lowest cost; used only for refinances or purchases extremely close to closing
• 30-day lock: Standard for resale purchases; most closings complete in 21–30 days after full underwriting
• 45-day lock: Used for new construction or transactions with complicating factors; typically costs 0.125 to 0.25 points more than a 30-day lock
• 60-day lock: Extended lock for new construction with uncertain completion dates; costs 0.25 to 0.5 points above a 30-day
• 90–180 day locks: Available from some new construction lenders; lenders charge significant premium for this duration

Float-Down Options

Many lenders offer a float-down provision with their rate locks. If prevailing market rates drop by a specified amount (typically 0.25% or more) after your lock, you can exercise the float-down and capture the lower rate. Float-down options typically cost 0.125 to 0.25 discount points upfront. They are worth considering when rates are volatile, when you have a longer lock period, or when you believe rates may decline before your closing date.

Temporary Rate Buydowns

Temporary buydowns became extremely popular in 2023 and 2024 as sellers began offering concessions to attract buyers in a higher-rate environment. The most common structures:

2-1 Buydown: The seller (or builder) deposits funds into an escrow account at closing. In year 1, your interest rate is 2% below the note rate (e.g., 4.5% on a 6.5% loan). In year 2, it is 1% below (5.5%). Starting in year 3 and for the remaining loan term, you pay the full note rate (6.5%). The total cost of the buydown is the sum of the monthly interest difference over two years — on a $600,000 loan at 6.5%, this totals approximately $16,000 to $18,000, typically paid for by the seller as a negotiated concession.

1-0 Buydown: Year 1 rate is 1% below the note rate; year 2 onward is the note rate. Less expensive for the seller — approximately $8,000 to $9,000 on a $600,000 loan.

Permanent Buydowns (Discount Points): Each discount point costs 1% of the loan amount and typically reduces your rate by 0.25% (though this varies by lender and market conditions). On a $600,000 loan, one point = $6,000. Whether buying points makes financial sense depends on how long you keep the loan — calculate the break-even: divide the upfront cost by the monthly savings. If break-even is 42 months and you plan to keep the home 7+ years, buying points makes sense. If you might move or refinance in 3 years, it does not.

Escrow Impound Accounts

For conventional loans with LTV above 80%, lenders require an impound (escrow) account to collect property taxes and homeowners insurance monthly along with your mortgage payment. Arizona is unique in that property taxes are paid in two installments — the first half is due October 1 (delinquent November 1) and the second half is due March 1 (delinquent May 1). Your lender will collect 1/12 of the estimated annual tax bill each month and accumulate the funds in the impound account. At closing, you will prepay 2 to 6 months of property taxes into the impound account (the exact amount depends on where you are in the tax cycle at closing). This adds a meaningful upfront cost that buyers sometimes overlook when planning for closing.

Closing Costs in Arizona for Conventional Loans

Arizona buyers using conventional financing should budget 2% to 3% of the purchase price in closing costs, though the exact amount varies significantly by loan amount, negotiated credits, and lender pricing. Here is a breakdown of what you will see on your Closing Disclosure:

Lender Fees

• Origination fee: 0% to 1% of loan amount; some lenders charge no origination in exchange for a higher rate, others charge 1% or more for a lower rate — it's a pricing mechanism, not free money either way
• Underwriting fee: $500 to $1,500; covers the lender's cost of reviewing and approving the file
• Appraisal fee: $500 to $800 in Maricopa County; typically paid upfront before the appraisal is ordered (not at closing)
• Credit report fee: $50 to $100; often rolled into the underwriting fee
• Discount points: 0 to 2%+ depending on rate choice; optional but show up here if elected

Title and Escrow Fees

• Owner's title insurance: Approximately 0.5% of purchase price; protects you (the buyer) against title defects, liens, and ownership disputes; highly recommended even though not legally required
• Lender's title insurance: Required by all lenders; similar to owner's policy but protects only the lender; often simultaneously issued at a discount when combined with owner's policy
• Escrow/closing fee: $800 to $1,500; paid to the title company or escrow company handling the transaction; in Arizona, title companies typically handle escrow
• Title search and exam: $200 to $400; the title company's fee for researching ownership history and liens

Government Fees

• Recording fees: Maricopa County charges $15 per document; a typical transaction records 2 to 3 documents (deed of trust, warranty deed, etc.)
• Transfer taxes: Arizona has no transfer tax — this is a significant advantage over California and most other states

Prepaids (Not Fees, But Cash at Closing)

• Homeowners insurance: Year 1 premium paid upfront at closing; Arizona homeowners insurance runs approximately $900 to $2,500/year depending on location and coverage level — plan for this cash outlay
• Prepaid interest: Interest from the day of closing through the end of the month; a 30-day month × daily interest rate × loan amount; on a $600,000 loan at 6.5%, this is approximately $107/day
• Property tax impound setup: 2 to 6 months of property taxes collected into your escrow impound account at closing
• PMI impound setup: If applicable, typically 2 months of PMI collected at closing

Seller Concessions — The Negotiation Lever

Conventional loan seller concession limits are based on the LTV of the loan, not a flat percentage as with FHA. At LTV above 90% (less than 10% down), the seller can contribute up to 3% of the purchase price toward the buyer's closing costs. At LTV between 75% and 90%, the limit is 6%. At LTV below 75% (25%+ down payment), the limit rises to 9%. These concessions are applied to the buyer's actual closing costs — they cannot be used to reduce the purchase price or give the buyer cash back outside of what is on the HUD/CD.

In a shifting or buyer-friendly market, requesting seller concessions to cover closing costs is entirely reasonable and common. In the Phoenix market as of mid-2026, negotiating 1% to 2% in seller concessions is standard practice on properties that have been listed for 30+ days or where the seller is motivated. Your agent should be advocating for this in every offer negotiation — those concessions are real money back in your pocket.

Frequently Asked Questions

Conventional Loan Application Checklist

When you are ready to apply for a conventional loan in Arizona, having your documents organized ahead of time will dramatically speed up the process. Here is what your lender will ask for:

Income and Employment Documentation

• Most recent two years of federal tax returns (all pages, all schedules)
• Most recent two years of W-2s (from all employers)
• Most recent 30 days of pay stubs from current employer
• If self-employed: two years of business tax returns, YTD profit & loss statement (signed by CPA), business bank statements 60 days
• If you receive RSU, bonus, or commission income: documentation showing 2-year history and confirmation it is expected to continue
• Social Security award letter (if applicable)
• Pension award letter (if applicable)
• Child support or alimony documentation (if you want it counted as income — requires 3+ years of continuance)

Asset Documentation

• Most recent 60 days of bank statements for all checking and savings accounts (all pages, including blank pages)
• Most recent 60 days of statements for all brokerage/investment accounts
• 401(k), IRA, or retirement account statements (most recent 2 months)
• Gift letter (if using gift funds for down payment) — signed by donor, stating funds are a gift, not a loan, and documenting the donor's ability to give
• Documentation of any large deposits (anything over 50% of monthly income may need to be sourced and explained)

Personal Identification and Credit

• Government-issued photo ID (driver's license or passport)
• Social Security Number (for credit pull authorization)
• Authorization to run credit report
• Letters of explanation for any derogatory credit items (late payments, collections, inquiries)

Property-Related Items (After Contract Acceptance)

• Fully executed purchase contract (all addenda, pages, and signatures)
• Most recent HOA financial statements and meeting minutes (if purchasing in an HOA — your agent should obtain these)
• HOA disclosure documents per ARS §33-1806
• Home inspection report (not required by lender but impacts appraisal and repair negotiations)

Arizona Tax Advantages That Pair Well with Conventional Loans

Arizona's tax environment is genuinely favorable for homeowners, adding to the overall value proposition of buying in the Phoenix metro:

State Income Tax — 2.5% Flat Rate

Arizona's flat 2.5% state income tax rate is among the lowest in the country, leaving more household income available for mortgage payments and housing costs. For high-earning technology workers relocating from California (9.3%+ marginal state tax), the effective income increase from the state tax reduction alone can fund thousands of dollars per year in additional mortgage payment capacity.

No Arizona State Estate Tax

Arizona has no state estate tax, meaning the equity accumulated in your home transfers to heirs without an Arizona-level estate tax burden on top of federal estate tax. This makes Arizona homeownership particularly attractive for wealth-building strategies.

Capital Gains Exclusion (Federal IRC §121)

The federal capital gains exclusion allows homeowners to exclude up to $500,000 in gains from the sale of a primary residence (married filing jointly; $250,000 single), provided you have lived in the home as your primary residence for at least 2 of the past 5 years. In Arizona's appreciation market, this exclusion is a powerful tax benefit for long-term homeowners. A couple who bought in Phoenix or Scottsdale in 2018 for $450,000 and can sell today for $900,000 would potentially exclude all $450,000 in gain from federal capital gains tax — saving $67,500 or more in federal taxes (at the 15% long-term capital gains rate).

Senior Valuation Protection (ARS §42-17302)

Arizona's Senior Valuation Protection program freezes the assessed value of a home for property tax purposes for homeowners 65 and older who meet income and long-term residency requirements. This prevents runaway property tax increases driven by appreciation from displacing long-term senior residents. Relevant context: AZ's 55+ communities (Sun City, Sun Lakes, PebbleCreek) are significant conventional loan markets, and senior buyers should be aware of both this protection and the HOPA 80/20 occupancy rules that govern active adult communities.

Summary — Is a Conventional Loan Right for You?

Conventional loans are the right choice for the vast majority of Phoenix metro homebuyers who have a 620+ credit score and at least 3% to 5% for a down payment. They offer competitive rates, flexible property types, cancelable PMI, and the broadest lender and pricing options in the market. They are also the only option for second homes, investment properties, non-primary residence purchases, and many condo projects that fall outside government program restrictions.

The path to the best conventional loan outcome in Arizona in 2026 is not complicated, but it requires preparation:

• Know your credit score and work to optimize it before applying — even 20 points can mean thousands in savings
• Understand your real down payment options — you do not need 20%, but more down reduces PMI and strengthens offers
• Get pre-approved (not just pre-qualified) before shopping — a full underwriting pre-approval is far more credible in a competitive market
• Use a lender with deep Arizona market knowledge who can navigate non-disclosure state appraisal challenges, CFD assessments, and warrantable condo requirements
• Compare total loan cost packages — rate, origination, points, and PMI — not just the advertised rate
• Factor in seller concessions and builder incentives as part of your total deal evaluation

I have guided hundreds of buyers through the Phoenix metro home purchase process and work with a network of experienced local mortgage professionals who know Arizona's lending landscape inside and out. Whether you are a first-time buyer navigating the 3% down options for the first time, a move-up buyer approaching the $806,500 conforming limit, or an investor using conventional financing to expand your portfolio, I can connect you with the right team and help you put together the strongest possible offer.