Homeownership in Arizona: The Best Mortgage Options in the Grand Canyon State

Arizona is known for a unique blend of natural beauty, year-round sunny weather, cultural diversity, and outdoor activities that attract over 40 million visitors a year.

Whether you are a snowbird or planning to live in Arizona year-round, MiMutual Mortgage has a variety of financing options for those looking to live the desert lifestyle.

ADUs – a solution to Arizona’s housing market

Home prices in AZ have skyrocketed, and homebuyers may find it challenging to find affordable housing. However, with AZ House Bill 2720 and 2721 being signed into law by Governor Katie Hobbs in May of 2024, two new state laws aim to address the “missing middle” housing options.

The new state laws override local zoning codes and requires cities with a population of 75,000 or more to allow for multi-unit housing and townhomes within a mile of their central business districts. Additionally, cities with the same population size must permit homeowners to add  Accessory Dwelling Units (ADUs) to their single-family home lots.

Some cities, such as Phoenix, passed its own bill a year prior to allow backyard casitas as a response to the city’s housing shortage.

What is an Accessory Dwelling Unit?

An ADU is a small, secondary housing unit that is on the same property as the main single-family residence and typically has its own kitchen, bathroom, sleeping area and separate entrance. These self-contained units can serve a variety of purposes and are often referred to in Arizona as granny-flats or casitas.

With ADUs now legal statewide, this presents an opportunity for homeowners to create more space, to earn extra income through rent, accommodate family needs and increase the value of their property. And the good news is, it is now easier than ever to obtain funding to buy a home with an ADU or to add one onto your existing property!

Last year, the Federal Housing Administration (FHA) changed its policy on ADUs due to the rising demand for them. The policy change allowed rental income from Accessory Dwelling Units (ADUs) to be considered as a valid source of income when qualifying for an FHA-backed mortgage. This allows borrowers to qualify based on actual or future rent. If you have been dreaming of buying a home in Arizona, but were held back by financial constraints, this policy change could be the opportunity you’ve been waiting for.

MiMutual Mortgage offers the FHA 203(k) and FNMA HomeStyle renovation loans that allow you to roll renovation costs into your purchase or refinance. This means you will have just one monthly mortgage payment.

As a Renovation Loan specialist, MiMutual Mortgage knows the renovation process, closes a high number of these types of loans and has a dedicated Renovation Lending department to follow through from application to after closing. To learn more about the Renovation loan process, check out our segment on  “Designing Spaces” airing on Lifetime Network. WATCH NOW

A prime location to invest.

Known for its scenic landscapes, year-round sunshine, tourist attractions and growth in population for the last eleven out of 12 years, Arizona is a prime location for investors looking to capitalize on the vacation rental market, the snowbird housing scene, and long-term rental needs. Budding and established real estate investors can seize the opportunity through a variety of mortgage loans.

Good schools, safe communities and plenty of job opportunities has led to a demand in long-term housing. Maricopa and Pima counties, which encompass cities like Phoenix, Scottsdale, and Tucson which offers young professionals employment options in the tech sector, aerospace and defense, Bioscience, renewable energy as well as tourism and hospitality. Families are also flocking to Arizona and for good reason. Recently US News & World Report released the 2024 top high schools list and BASIS Peoria High School topped the chart as the #1 school in the nation, and two others-BASIS Chandler and BASIS Oro Valley made the top 10 list.

With some of the best golf courses and tournaments in the nation, like the Waste Management Phoenix Open, the majestic Grand Canyon National Park, Tlaquepaque Arts and Shopping Village, and as the Spa capital of the world, Arizona attracts millions of tourists and seasonal visitors each year. Short-term / Vacation rental properties can yield high returns, particularly during peak tourist season.

Snowbird rentals in Arizona are one of the hottest real estate trends and can be extremely profitable. Seasonal rentals usually mean minimal maintenance, quieter tenants and 0% vacancy during the winter months, making this a great option for generating passive income.

Whether you are an investor looking to capture long-term renters, cater to the snowbirds or run a short-stay vacation rental on sites like Airbnb or VRBO, a MiMutual Mortgage DSCR loan or Asset Qualifier could work for you.

What is a DSCR loan?

DSCR, or Debt Service Coverage Ratio, is a financial metric used to evaluate the ability of an income-producing property to cover its debt obligations. In the context of real estate investment, it measures the property’s ability to generate enough rental income to cover the mortgage payments.

This means that instead of a borrower’s personal income, the primary qualifying factor is the investment property’s actual or potential income. With a DSCR loan, there is no Debt-to-Income Ratio calculation, and no personal income verification.

DSCR loans open a world of opportunity to those who don’t have traditional income, for those who already have multiple investment properties or for those who are just starting their real estate journey.

Asset Qualifier loans work well for retirees, business owners, and investors who may have a tough time qualifying for a traditional mortgage due to a lack of employment. With an Asset Qualifier loan, no income is needed!

Under this loan program, borrowers qualify based on eligible assets like savings, retirement funds and investment accounts. Like the DSCR loan, there is no personal income verification. This loan can be used to purchase or refinance second homes and investment properties.

Why Snowbirds flock to AZ

Snowbirds, who are typically retirees looking to escape harsh winters, flock to Arizona in droves. Retirees here can enjoy relatively low property taxes, robust healthcare systems, an abundance of 55+ communities and no taxes on social security benefits.

With more than 300 days of sunshine a year, low humidity, and numerous recreational activities, it is no wonder snowbirds make an annual migration to places like Phoenix, Sun City, Sedona, and Green Valley. One city, Scottsdale, whose population is 25% seniors, was just named by Niche.com as the best city in the United States to retire to in 2024.

In Arizona, snowbird season starts as early as October and can last until April or May. For snowbirds spending as many as 6 months in the Grand Canyon State, it could make more financial sense to buy a second home as opposed to renting.

Conventional Loans for second or vacation homes:

MiMutual Mortgage offers loans for second and vacation homes. A conventional loan is a good option in this scenario because it is cost effective, applicable to nearly all types of properties and offers flexibility in loan terms, programs, and the amount you can borrow.

Unlike FHA, VA or RD loans, conventional loans do not require private mortgage insurance (PMI) unless the borrower has less than 20% down. Some conventional loan programs require as little as 3% down! Additionally, you can cancel PMI once you reach 20% home equity.

A few of the eligible property types that can be used with a conventional loan include:

-Single-Family Residence

The most common type of property financed through conventional loans is single-family homes. These are standalone residential properties designed to house one family.

-Multi-Unit Properties

This includes duplexes, triplexes, and fourplexes. These properties allow owners to live in one unit and rent out the remaining units to generate rental income.

-Townhouses

Townhouses that are individually owned and not part of a condominium association can be financed through conventional loans. These are typically attached or semi-attached units that share walls with neighboring properties.

-PUDs

Planned Unit Developments (PUDs) are planned communities that consist of individually owned units, such as houses or townhouses, along with shared amenities and communal areas.

Why spend thousands of dollars on hotels, flights, rental cars, etc.…when you can experience a vacation from the comfort of your own home? With a second house or vacation home mortgage from MiMutual, you can enjoy a staycation anytime you want and rent out your home when you are not using it to earn additional income.

Considering a Condo

Condominiums are a great solution for home buyers who want to own their own space but do not want to spend a lot of time on the maintenance or yard work that is associated with a traditional single-family home.

Each unit is individually owned, but part of a larger housing complex. These communities have communal areas that are maintained by a Homeowners Association (HOA) and offer amenities like pools, gyms, clubhouses, spas, and outdoor activities like golf, pickleball and bocci ball courts.

Condominiums have grown in popularity every decade since 1970, and Arizona has become one of the top condominium markets in the United States. A few of the most popular condominium communities for seniors is Canoa Ranch in Green Valley, Prescott Lakes in Prescott, Sun City (the nation’s first 55+ community) and Sun City Grand in Surprise, AZ.

Conventional loans can be used to purchase or refinance condominium units if the condominium project itself meets certain criteria such as the financial stability of the homeowners’ association, occupancy rates, and insurance coverage.

Not all condos will meet conventional loan requirements. These are known as non-warrantable. Non-warrantable properties include projects that are new construction and not yet completed, condo hotels (condotels), short-term rentals (STRs), timeshares, fractional ownership properties, multi-unit condominiums, or have a high percentage of units that are occupied by non-owners.

But with MiMutual Mortgage as your lender, you don’t have the hassle of ensuring whether your condominium is warrantable. MiMutual Mortgage is your go-to lender for any type of condo!

Reverse mortgage option

Whether you join the flock of snowbirds, or decide to spend retirement in Arizona year-round, a Reverse mortgage may be a good option for you.

A Reverse Mortgage is a home loan exclusive to seniors aged 62 or older. This type of loan allows borrowers to use their home as collateral toward a new home or to age in place in their current home without having to make the usual monthly mortgage payments. MiMutual Mortgage has Loan Officers who specialize in this type of loan, and they help determine if this is right for you.

Need more than the conforming limits?

Buying real estate in Arizona can offer significant opportunities but can also pose some challenges. According to the Arizona Department of Housing, the state currently has a shortage of more than 270,000 housing units which is one contributing factor in the rise of home prices. Housing site Redfin,com stated Arizona home prices were up 7.5% this spring compared to the same time a year earlier and experts predict this trend to continue.

In some communities, such as Paradise Valley, the median home price is over $3 Million, and in three AZ communities Cave Creek, Carefree, and Fort McDowell the typical price tag for a home is over $1 Million. For buyers in this type of housing market, a non-conforming loan or Jumbo loan may be a good option.

Conforming loans are mortgages that meet Fannie Mae and Freddie Mac guidelines. loan amount guidelines. These limits set the maximum amount of money a borrower can mortgage, and these limits change annually. Any loans that don’t meet the requirements are known as non-conforming.

Jumbo loans can be used to purchase or refinance a primary residence, second home or investment property. MiMutual Mortgage offers Jumbo loans up to $4 million and has options as little as 10% down. And unlike conventional loans, there is no private mortgage insurance (PMI) for having less than 20% equity!

Ready to make a move?

With a warm climate, a robust economy, plenty of job opportunities, and a diverse landscape to enjoy,  there are so many reasons Arizona is a great place to own a home! At MiMutual Mortgage, our goal is to make homeownership accessible to everyone, regardless of their financial background or unique needs. Connect with one of our Loan Officers to see what loan option is right for you!