Conventional loans in Arizona — the long-term low-cost option for strong-credit buyers.
Conventional is the standard mortgage in America. It's not government-backed; it follows guidelines set by Fannie Mae and Freddie Mac. For first-time buyers with credit at 700+ and any meaningful savings, conventional usually beats FHA on lifetime cost, mostly because the mortgage insurance falls off automatically once you have equity.
Conventional at a glance
| Down payment | 3% (FTHB programs) · 5% standard · 20% to avoid PMI |
| Minimum FICO | 620, best pricing at 740+ |
| Maximum DTI | 45% standard, up to 49.99% with strong compensating factors |
| Mortgage insurance | PMI required <20% down; drops off automatically at 78% LTV |
| 2026 loan limit (most AZ counties) | ~$806K–$832K, verify current |
| Property types | 1–4 unit primary, second home, or investment property |
| Gift funds | 100% allowed from family on FTHB programs |
| Seller concessions | 3% (3–10% down) · 6% (10–25% down) · 9% (25%+ down) |
| Best for | Strong credit, longer-term hold, plan to build equity |
Conventional vs FHA — the real comparison
This is the choice most Arizona first-time buyers face: FHA or conventional? It comes down to credit, savings, and how long you'll own the home.
| Factor | FHA wins | Conventional wins |
|---|---|---|
| FICO 620–700 | Yes (FHA pricing better) | No |
| FICO 700–740 | Sometimes | Sometimes |
| FICO 740+ | No | Yes |
| Plan to hold 3+ years | Sometimes | Usually wins long-term |
| Plan to refinance soon | Sometimes | Sometimes (lower upfront cost) |
| Need higher DTI (50%+) | Yes | No |
| Recent credit event | Yes (shorter waiting periods) | No |
| Smaller down payment | Sometimes (3.5% FHA) | Sometimes (3% conventional FTHB) |
| Investment property | No (primary only) | Yes |
| PMI drops off automatically | No (life of loan if <10% down) | Yes (at 78% LTV) |
The biggest tiebreaker for first-time buyers in Arizona is usually mortgage insurance. FHA mortgage insurance lasts the life of the loan in most cases. Conventional PMI drops off automatically. Over 10 years, that single difference often makes conventional cheaper even if the upfront monthly payment is similar.
The 3% down conventional programs (HomeReady & Home Possible)
Conventional loans aren't just "20% down." For first-time buyers, Fannie Mae and Freddie Mac offer 3%-down programs:
- Fannie Mae HomeReady: 3% down, 620 FICO floor, income limit 80% of area median (in Maricopa, ~$78K for 2025), reduced PMI rates compared to standard conventional
- Freddie Mac Home Possible: Same 3% down structure, similar income cap, similar PMI discount; slightly different DTI calculation rules
- Standard 3% down (Conventional 97): 3% down, 620 FICO, no income limit, but PMI is at standard rates
The income cap on HomeReady/Home Possible matters for Phoenix metro buyers. If your income is over the cap (~$78K in Maricopa), you'd use Conventional 97 instead, same 3% down but standard PMI pricing.
Stack 3%-down conventional with Arizona DPA →Private mortgage insurance (PMI) — how it actually works
Conventional PMI is the cost of putting less than 20% down. The good news: it goes away.
- Cost: Pricing varies by file of the loan annually, paid monthly. Your specific PMI rate depends on credit, down payment, and DTI. A FTHB with 5% down and 720 FICO might pay ~0.55% annually; the same buyer with 3% down and 660 FICO could pay 1.1%+.
- Cancellation rules (federal HPA): PMI cancels automatically When your loan-to-value reaches 78% based on the original amortization schedule and original home value.
- Earlier cancellation: You can request PMI removal at 80% LTV with a current appraisal at your expense. Useful in fast-appreciating Arizona markets. Phoenix, Scottsdale, and Gilbert appreciation has often pushed buyers under 80% LTV faster than the schedule.
- PMI is tax-deductible In some years/situations, talk to a CPA. The deduction has been on-and-off in recent tax law.
The PMI math vs FHA mortgage insurance: on a $400,000 conventional loan with 5% down at 720 FICO, PMI runs about $180/month. After 5–7 years (or sooner if AZ appreciation continues), PMI drops off. FHA on the same loan keeps mortgage insurance for the life of the loan (or until refinance). That's the long-term cost story.
Real numbers — Scottsdale example with strong credit
| Item | Amount |
|---|---|
| Purchase price | $525,000 |
| Down payment (5%) | $26,250 |
| Loan amount | $498,750 |
| Monthly P&I (illustrative ~file-specific pricing, 740 FICO) | ~$3,070 |
| Monthly PMI (~0.45% with 740 FICO) | ~$187 |
| Estimated taxes + insurance + HOA | ~$510 |
| Total monthly payment (initial) | ~$3,767 |
| Estimated payment after PMI drops (year ~6–7) | ~$3,580 |
| Estimated closing costs (2–4%) | ~$10,500–$21,000 |
| Cash to close | ~$36,750–$47,250 |
Compared to FHA on the same purchase price: conventional saves ~$60–$80/month upfront, and ~$190/month after PMI drops. Over 10 years, that's $20,000+ in savings vs FHA, even though the day-one payments look similar.
Conforming loan limits in Arizona for 2026
Conventional loans are called "conforming" when they fit within Fannie Mae and Freddie Mac's loan limit. The 2026 conforming limit for most Arizona counties is approximately $806,500–$832,000 for a single-family home. Above this limit, you'd need a jumbo loan, which has stricter qualification (typically 700+ FICO, 10–20% down minimum).
Most AZ counties, including Maricopa, Pima, Yavapai, Coconino, sit at the standard limit. There are no "high-cost" county designations in Arizona currently.
Verify the current 2026 conforming limit for your county before making offers above $800K. Limits are revised annually by FHFA and posted in November/December.
Conventional appraisal — different from FHA/VA/USDA
Good news: conventional appraisers don't enforce the strict minimum property requirements that FHA, VA, and USDA do. They check value only. That makes conventional the easier loan to use on:
- Older Arizona homes with cosmetic issues
- Homes with non-functioning pools (huge in AZ)
- Homes with peeling paint, missing handrails, or other minor "fixer" issues
- Condo projects not on the FHA/VA approved list
- Multi-unit properties used as investments
If the home you want has any FHA/VA-style flag and the seller won't fix it, conventional is often the path forward.
Common conventional questions
What's the minimum down payment for conventional in Arizona?
3% on first-time buyer programs (HomeReady or Home Possible). 5% on standard conventional. 20% to avoid PMI entirely.
What credit score do I need?
620 is the floor. Best pricing kicks in at 740+, with additional pricing breaks at 760 and 780. Below 700, conventional pricing gets aggressive enough that FHA may actually be cheaper despite mortgage insurance.
When does PMI drop off?
Automatically at 78% loan-to-value based on original amortization. Or earlier on request at 80% LTV with a current appraisal at your expense. Phoenix-area appreciation often pushes buyers under 80% LTV in 3–5 years.
What's the 2026 conforming loan limit in Arizona?
Approximately $806K–$832K for most AZ counties. Verify before making offers above $800K, the 2026 number is set by FHFA and revised annually.
Can I use a conventional loan on an investment property?
Yes, this is one of conventional's biggest advantages over FHA, VA, and USDA. Investment properties typically require 15–25% down, higher credit, and slightly higher rates, but it's available.
Can I have a co-borrower on a conventional loan?
Yes, including non-occupant co-borrowers (e.g., parents helping a first-time buyer qualify). FHA allows this too. VA and USDA generally don't.
How long after a foreclosure can I get a conventional loan?
Generally 7 years from foreclosure completion. 4 years from a deed-in-lieu or short sale. 4 years from Chapter 7 bankruptcy discharge. Compare to FHA's 3 years on foreclosure and 2 years on Chapter 7.
Can I stack conventional with Arizona down payment assistance?
Yes, most AZ DPA programs (Home Plus, Home In 5, Arizona Is Home) work with conventional first mortgages, not just FHA. The combo of 3% conventional + 3–5% DPA can mean near-zero out-of-pocket for qualifying buyers. More on AZ down payment assistance →
What's a "jumbo" loan?
Any conventional loan above the conforming limit (~$806K–$832K in Arizona for 2026). Jumbo loans require stricter qualification, typically 700+ FICO, 10–20% down minimum, lower DTI limits, and 6+ months of reserves. We do jumbo loans in Arizona; ask if you're shopping above the conforming limit.
Strong credit and some savings? Conventional may be your move.
20-minute call. We'll model FHA vs conventional side-by-side with your real numbers, including the long-term mortgage-insurance math, and tell you the cheaper path.