The pathway to homeownership is still the ultimate dream for so many people.
Despite a more sluggish real estate market as of late, homes in Arizona are still expensive, pricing a lot of potential buyers out of the market.
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But one lending option just got more affordable and it could be your family's key to the American Dream.
Ann Bui is one of those people experiencing the joys of homeownership for the first time.
"I bought a new washing machine and dryer. I have to replace the A/C because it broke last summer."
Ann was definitely a savvy homebuyer, signing on the dotted line while rates were still at historic lows.
"I got it during COVID so the rates were good, but it is an old unit... I did need to fix it up a bit."
She also made another smart decision.
"I lived with my parents until I pretty much moved into that condo, so I had a lot of savings. I am grateful that my parents were kind enough to not charge me any rent but that's how I pretty much saved up all my money."
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And the saving paid off. Working two jobs, she had enough for a 20% down payment on her conventional loan, but what happens when that big of a down payment is out of reach?
That's the reality for so many people, especially as prices here in Arizona start to climb again. That's where FHA loans come in handy; these are loans from the Federal Housing Administration where instead of an enormous 20% down payment, you're only putting down 3.5% instead. But because you're putting down less money, you have to pay for something each month called Private Mortgage Insurance, or PMI.
Keep in mind — there are conventional loan options where you can put down less than 20%, but these would also require paying PMI, so make sure you speak with your lender about all the options that are available to you.
The Biden Administration recently announced that premiums on PMI would be going from 0.85% to 0.55% - it may not seem like much, but experts say the savings could really add up.
Jeremy Shachter with Fairway Independent Mortgage in Phoenix says on a typical home loan of $500,000, that reduction could save homeowners $144 each month.
"That's pretty significant with groceries so high, gas prices, interest rates - this is a welcoming factor for the housing market," Schachter explains.
Schacter adds that FHA loans have many other upsides.
"They're a little more lenient on Debt vs. Income, so how much debt you have versus the income you make."
But, there are some drawbacks to FHA.
"With FHA loans, you have something called a 'funding fee' which is 1.75% that's rolled into the loan."
You also have to have a credit score of at least 580 in many cases, however, there are options where you can put slightly more money down and have a credit score of 500. Again, speak with your lender directly to find out which options are available to you.
An FHA loan needs to be for primary residence and typically, homeowners can only have one FHA loan at a time.
