Most homes in the Phoenix area are bought with a conventional loan, the kind backed by Fannie Mae and Freddie Mac rather than a government agency. It can work with as little as 3% down, its mortgage insurance can come off, and it can finance a second home or a rental, which FHA cannot. Here is what it takes to qualify in 2026, how builder and seller concessions work on a conventional loan, and how to tell when FHA is the better deal instead.
Quick answer
For a home you will live in, a conventional loan needs 3% down if at least one buyer is a first time buyer or your income fits HomeReady or Home Possible, and 5% down otherwise. Second homes need 10% down and one unit rentals 15%. Fannie Mae’s automated system has no fixed minimum credit score, but most lenders still look for about 620, and pricing improves as your score rises. The 2026 limit in Maricopa County is $832,750 for one unit. Put down less than 20% and you pay private mortgage insurance, which you can drop once you reach enough equity.
How do conventional loans work in Maricopa County?
A conforming conventional loan follows Fannie Mae or Freddie Mac rules and stays within the limits the Federal Housing Finance Agency sets each year. Maricopa County uses the national baseline, so a larger loan is a jumbo loan with rules set by each lender. The minimum down payment depends on how you will use the home:
| How you will use it | Minimum down | 2026 loan limit |
|---|---|---|
| Home you live in, one unit | 3% for qualifying buyers, otherwise 5% | $832,750 |
| Home you live in, two to four units | 5% | $1,066,250 for two units, $1,288,800 for three, $1,601,750 for four |
| Second home, such as a winter place | 10% | $832,750 |
| Rental, one unit | 15% | $832,750 |
| Rental, two to four units | 25% | Same as above by unit count |
That flexibility matters in the Valley, where plenty of buyers want a winter home or a rental as well as a primary home. FHA only finances homes you live in.
What do lenders look at to approve you?
- Credit score: since November 16, 2025, Fannie Mae’s Desktop Underwriter has no fixed minimum score, while manually underwritten fixed rate loans still need 620. Lenders add their own floors, and the best pricing goes to scores of 780 and up, with pricing improving at each step along the way.
- Debt to income ratio: automated approvals can reach 50% of your gross monthly income, counting the new payment, HOA dues and your other debts. Manual approvals are held to 36%, or 45% with strong credit and reserves.
- Income history: two years of steady employment or self employment is the norm. If you work for yourself, read how lenders count business income.
- Gifts: on a one unit home you will live in, a relative or other eligible donor can give you the entire down payment. A builder or real estate agent cannot be the donor.
- Reserves: money left in the bank after closing. The automated findings set the amount, and it rises for second homes, rentals and owners with several financed properties.
Married in Arizona? Arizona is a community property state, so your spouse usually signs the deed of trust even if only you are on the loan.
How can you buy with 3% to 5% down?
Four conventional options allow 3% down on a one unit home you will live in. Fannie Mae’s standard 97% loan and Freddie Mac’s HomeOne need at least one first time buyer, meaning someone who has not owned a home in the past three years, and have no income limit. Fannie Mae’s HomeReady and Freddie Mac’s Home Possible need income at or below 80% of the area median, but you do not have to be a first time buyer, and their mortgage insurance coverage is lower.
There are a few extras worth asking about:
- Fannie Mae waives its loan level price adjustments for first time buyers with income up to 100% of the area median, which can lower your rate or costs.
- Through February 2027, Fannie Mae offers a $2,500 credit on HomeReady purchases for first time buyers with income at or below 50% of the area median.
- HOME Plus and Home in Five Advantage both pair with the housing agency versions of these loans. Dave’s first time buyer guide covers both programs.
How much can a seller or builder pay toward your costs?
Seller and builder help is common in the Phoenix area, especially on new construction. On a conventional loan, these contributions can pay closing costs, prepaid items, a rate buydown and up to 12 months of HOA dues, but Fannie Mae caps them by your down payment:
| Your down payment | Home you live in or second home | Rental property |
|---|---|---|
| Less than 10% | Up to 3% of the price | Up to 2% |
| 10% to less than 25% | Up to 6% of the price | Up to 2% |
| 25% or more | Up to 9% of the price | Up to 2% |
Anything above the cap, or more than your actual costs, is treated as a price reduction, which can change your loan amount. FHA allows up to 6% at any down payment, so a buyer putting down 3% to 5% can sometimes receive more help on FHA.
Tip: a temporary buydown lowers your payment for the first one to three years, but you still qualify at the full note rate. If you plan to keep the loan for years, a permanent buydown or a price reduction can be worth more than a temporary one.
Weighing a builder incentive?
Dave can compare the builder’s offer with an outside quote and show the true cost of each one.
What does PMI cost, and how do you get rid of it?
Private mortgage insurance applies when you put down less than 20%. Most buyers pay it monthly, but it can also be paid once at closing, sometimes with seller credits, or built into a slightly higher rate. Its price depends mostly on your credit score and down payment, so a stronger score lowers it noticeably.
On a single family home you live in, federal law gives you three ways out:
- Request it at 80%. Ask your servicer in writing once your balance reaches 80% of the original value, on schedule or sooner with extra payments. You need a good payment history and no second lien.
- Automatic at 78%. PMI ends on its own when your balance is scheduled to reach 78% of the original value, if you are current.
- Midpoint of the loan. If neither has happened, it ends after the halfway point of the loan term, if you are current.
If your home has gained value, your servicer may also let you remove PMI based on a new appraisal. Fannie Mae’s servicing rules generally require at least two years of payments and a balance at or below 75% of the current value, or 80% after five years.
Should you choose conventional or FHA on a Phoenix area home?
| Your situation | Usually the better fit |
|---|---|
| Credit score in the mid 700s or higher with 5% down | Conventional, with low PMI that can be removed |
| Credit score in the low 600s | FHA, since its premium does not rise as your score falls |
| Debt to income ratio near 50% | Often FHA, though both can work |
| Buying a condo in a building without FHA approval | Conventional |
| Buying a second home or a rental | Conventional, since FHA requires you to live in the home |
| Builder offering more than 3% in concessions with under 10% down | Price both, since FHA allows up to 6% |
FHA charges 1.75% of the loan upfront and an annual premium that stays for the life of the loan when you put down less than 10%. Conventional PMI ends once you reach enough equity. The only way to know which costs less for you is to price both on the same day. See Dave’s overview of conventional home loans, or try the compare mortgage options tool.
Frequently asked questions
What credit score do I need for a conventional loan in Arizona?
Fannie Mae’s automated underwriting has no fixed minimum since November 2025, but most lenders still look for about 620. The lowest rates usually go to scores of 780 and above, and costs drop at each step on the way up.
Can I buy a second home in Arizona with a conventional loan?
Yes. A conventional loan can finance a one unit second home with 10% down, as long as you live in it for part of the year and it is not run as a rental.
How much can a builder pay toward closing costs on a conventional loan?
Up to 3% of the price when you put down less than 10%, 6% with at least 10% but less than 25% down and 9% with 25% or more down. On a rental the cap is 2%.
Is conventional better than FHA for a first time buyer in Phoenix?
Often it is when your score is about 700 or higher, because PMI can be removed and its price falls as your score rises. FHA is usually better with lower scores or a high debt to income ratio.
When does PMI come off a conventional loan?
You can ask to cancel it once your balance reaches 80% of the original value, and it ends automatically when your balance is scheduled to reach 78%, if you are current on payments.
David Martel
Mortgage Loan Originator with Barrett Financial Group, known online as Dave The Mortgage Guy. With access to more than 100 lenders, he helps Phoenix area buyers, self employed borrowers and investors find the right loan.
NMLS #2521668 | Company NMLS #181106
Based in Arizona. Current state licenses are listed on NMLS Consumer Access.
Shopping in the Valley?
Price conventional and FHA on the same home.
Dave Martel can run both loans on the house you want, include any builder or seller credit, and show the payment, the mortgage insurance and the cash you need to close.
Sources and official resources
- Fannie Mae Selling Guide: Credit score requirements
- Fannie Mae: Selling Guide announcement on credit scores, November 2025
- Fannie Mae Selling Guide: Debt to income ratios
- Fannie Mae: 97% loan to value options
- Fannie Mae Selling Guide: HomeReady eligibility
- Fannie Mae: HomeReady first time homebuyer credit extension
- Freddie Mac: Home Possible
- Freddie Mac: HomeOne
- Fannie Mae Selling Guide: Personal gifts
- Fannie Mae: Eligibility Matrix
- Fannie Mae: Loan level price adjustment matrix
- Fannie Mae Selling Guide: Interested party contributions
- Fannie Mae Selling Guide: Temporary interest rate buydowns
- CFPB: When can I remove private mortgage insurance?
- Fannie Mae Servicing Guide: Termination of conventional mortgage insurance
- HUD: FHA mortgage insurance premiums (Mortgagee Letter, February 2023)
- HUD: Single Family Housing Policy Handbook 4000.1
- FHFA: Conforming loan limit values for 2026
Information checked October 5, 2026. Rates, loan limits, program rules and assistance funding change, so confirm current terms before you rely on them.
This article is for general education only and is not a loan offer, commitment to lend, or tax or legal advice. Rates, terms, fees and programs vary by lender and are subject to change without notice. All loans are subject to credit approval, underwriting guidelines and property eligibility. Examples are illustrations, not quotes. Down payment assistance is subject to program funding, eligibility and participating lender rules. Dave The Mortgage Guy is powered by Barrett Financial Group, L.L.C., NMLS #181106, 2701 East Insight Way, Suite 150, Chandler, AZ 85286, Arizona license #0904774. David Martel, Mortgage Loan Originator, NMLS #2521668 (NMLS Consumer Access). Dave The Mortgage Guy and Barrett Financial Group are not affiliated with any government agency, including HUD, FHA and the VA. Equal Housing Opportunity.
