Learning Center
Every loan type, explained properly.
Most mortgage sites give you a paragraph per program and a button. This is the long version — what each loan actually is, who it genuinely fits, what it costs, and where it will let you down. Written by a licensed Arizona originator, not a copywriter.
The 60-second chooser
If you read nothing else, read this. Nine programs, one line each, and the single question that usually decides it.
- Served in the military? Start with VA. Zero down, no monthly mortgage insurance. It is almost always the best deal on the board.
- Buying in a rural or small-town area and income is modest? USDA — also zero down. Much of Arizona outside the Phoenix and Tucson metros qualifies, including a great deal of the Gila Valley.
- Credit in the 500s or 600s, or thin file? FHA is built for exactly that.
- Solid credit and 5% or more down? Conventional is usually cheapest over time, mostly because the mortgage insurance comes off.
- Borrowing above $832,750? That is Jumbo territory.
- Self-employed and your tax returns understate you? Bank statement loans exist for this exact problem.
- Buying a rental and want it judged on its own rent? DSCR.
- Already own and need cash or a safety line? HELOC, home equity loan, or a cash-out refinance — three genuinely different tools.
- Have the income but not the down payment? Down payment assistance is real, and Arizona has good programs.
The honest version
Nobody can tell you which program wins from a web page, because the answer depends on your credit, your down payment, the property, how long you will keep the loan, and what the market is doing the week you lock. What a page like this can do is make sure you know what exists, so nothing gets quietly left off your list.
Full comparison table
Every major purchase program, side by side. Scroll it sideways on a phone — the program names stay pinned.
| Program | Min. down | Credit, typical | Mortgage insurance | 2026 limit (1-unit) | Property rules | Best for |
|---|---|---|---|---|---|---|
| Conventional | 3% | 620+ | PMI, and it comes off | $832,750 | Primary, second home or investment | Good credit, wants MI to end |
| FHA | 3.5% | 580+ (500 with 10% down) | MIP, usually for the life of the loan | $541,287 floor | Primary residence only | Lower credit or thin file |
| VA | $0 | No VA minimum; lenders set one | None | No cap with full entitlement | Primary residence only | Veterans and active duty |
| USDA | $0 | 640+ typical | 1% upfront + 0.35%/yr | No set cap; income-limited | Eligible rural areas, primary only | Small-town buyers, modest income |
| Jumbo | 10–20% | 700+ typical | Usually none | Above $832,750 | Varies by investor | Higher-priced homes |
| HELOC | n/a — uses equity | 680+ typical | None | Set by equity and lender | Usually primary or second home | Flexible, re-drawable access |
| Home equity loan | n/a — uses equity | 680+ typical | None | Set by equity and lender | Usually primary or second home | One lump sum, fixed rate |
| DSCR | 20–25% | 660+ typical | None | Investor-set | Investment property only | Landlords; no personal income used |
| Bank statement | 10–20% | 660+ typical | Varies | Investor-set | Primary, second or investment | Self-employed with write-offs |
Credit scores and down payments shown are common market practice, not rules — individual lenders set their own overlays, and we shop 200+ of them. Limits are 2026 figures and change every year.
Conventional loans
Conventional (Conforming)
The default optionAny loan not backed by a government agency, written to standards Fannie Mae and Freddie Mac will buy.
This is the workhorse, and for most borrowers with decent credit it is the cheapest loan over its full life. The reason is not the interest rate — it is the mortgage insurance. Conventional PMI is temporary. Once you have paid down to 80% of the home's value you can ask for it to be removed, and at 78% the servicer must drop it automatically. On FHA, in most cases, the equivalent charge never goes away.
Advantages
- PMI is removable — often the single biggest long-run saving
- Down payments from 3% for qualified first-time buyers
- Works on primary homes, second homes and investment property
- No upfront government funding fee to finance
- Strong credit is rewarded with better pricing
- Appraisal waivers are possible on some files
Trade-offs
- Credit standards are stricter than FHA
- Pricing gets noticeably worse below about 680
- PMI is credit-priced, so weaker scores pay more
- Debt-to-income limits are less forgiving
- Above $832,750 you leave conforming and pricing changes
FHA loans
FHA
Built for tougher creditInsured by the Federal Housing Administration so lenders can say yes to borrowers conventional would decline.
FHA is the most forgiving mainstream loan in America and it has put an enormous number of families into homes. It is also widely misunderstood in one specific way: the mortgage insurance. You pay 1.75% upfront (usually financed into the loan) plus an annual premium. On most FHA loans with less than 10% down, that annual premium stays for the life of the loan. Put 10% or more down and it drops off after 11 years.
That is not a reason to avoid FHA — it is a reason to plan an exit. Many borrowers use FHA to get in, then refinance to conventional once credit and equity have improved. Done deliberately, that is a smart sequence.
Advantages
- Credit scores down to 580 with 3.5% down
- Down to 500 with 10% down at some lenders
- More generous debt-to-income allowances
- Gift funds can cover the entire down payment
- Assumable — a genuine asset if you sell when rates are higher
- Shorter waiting periods after bankruptcy or foreclosure
- 203(k) versions finance the purchase and the renovation together
Trade-offs
- MIP usually lasts the life of the loan under 10% down
- 1.75% upfront premium added to the balance
- Lower loan limits than conventional
- Primary residence only
- Property condition standards are stricter
- Some sellers in competitive markets prefer other offers
VA loans
VA
Usually the best deal availableGuaranteed by the Department of Veterans Affairs for eligible service members, veterans and surviving spouses.
If you are eligible, this is nearly always the strongest loan on the table. Zero down payment and — the part people miss — no monthly mortgage insurance at all. On a $400,000 loan that alone can be well over a hundred dollars a month versus a comparable low-down-payment conventional.
There is a one-time funding fee instead, tiered by down payment. On a first use: 2.15% with less than 5% down, 1.5% at 5–9.99%, and 1.25% at 10% or more. After a first use it rises to 3.3% under 5% down, while the 5% and 10% tiers stay at 1.5% and 1.25%. It can be financed into the loan. If you receive VA compensation for a service-connected disability, the funding fee is waived entirely. That waiver is missed surprisingly often — always ask.
Advantages
- No down payment with full entitlement
- No monthly mortgage insurance, ever
- Competitive rates, often better than conventional
- No VA-set credit minimum — lenders set their own
- Funding fee waived for service-connected disability
- Limits on what closing costs you may be charged
- Assumable, and the IRRRL streamline refinance is simple
- Entitlement is reusable for life
Trade-offs
- Eligibility is limited to those who served
- Funding fee unless exempt
- Primary residence only — not for rentals
- VA appraisal includes minimum property requirements
- Zero down means starting with no equity cushion
USDA loans
USDA Guaranteed Rural Housing
Zero down, and Arizona qualifies widelyBacked by the US Department of Agriculture to support home ownership outside major metros.
The most under-used loan in the country, because of the word “rural.” People assume it means a farm. It does not — it means outside designated urban areas, and a great deal of Arizona qualifies, including much of the Gila Valley around Safford, Thatcher and Pima. If you are buying in our area, this is worth checking before anything else.
USDA's fees are the lowest of any zero-down option: 1% upfront and 0.35% a year, noticeably cheaper than FHA's equivalent. The catches are that the property must be in an eligible area, it must be your primary residence, and your household income must fall under the local limit — which counts everyone in the home, not just borrowers.
Advantages
- No down payment required
- Cheapest ongoing fee of any zero-down loan
- Competitive fixed rates
- Closing costs can be gifted or seller-paid
- Much of rural and small-town Arizona is eligible
- No first-time-buyer requirement
Trade-offs
- Property must sit in an eligible area
- Household income limits apply
- Primary residence only
- Single-family homes — no duplexes or rentals
- Processing can add time versus conventional
Jumbo loans
Jumbo
Above the conforming lineAny loan larger than the conforming limit, held by banks and private investors rather than sold to Fannie or Freddie.
Because nobody is buying these loans on a standard rulebook, underwriting is manual and standards are set by whoever keeps the loan. Expect real scrutiny of reserves — many jumbo lenders want to see several months of payments still in the bank after closing. In exchange you often avoid mortgage insurance entirely even below 20% down, and jumbo rates are sometimes better than conforming.
This is the category where shopping matters most. Two jumbo lenders can differ far more than two conventional lenders, because they are not writing to the same book.
Advantages
- Finances homes above the conforming limit in one loan
- Often no mortgage insurance even under 20% down
- Rates are sometimes better than conforming
- Flexible structures for complex income
- Available on second homes and investment property
Trade-offs
- Higher credit and reserve requirements
- Larger down payment
- Manual underwriting takes longer
- Sometimes two appraisals
- Guidelines vary enormously between lenders
HELOC — Home Equity Line of Credit
HELOC
A credit line, not a loanA revolving line secured by your home. Borrow, repay, borrow again.
A HELOC works like a credit card with your house as collateral. You are approved for a limit, you draw what you need, and you pay interest only on what you have actually drawn — calculated daily. During the draw period the minimum payment is typically interest only. After it ends, the balance converts to an amortising loan, commonly over 20 years.
The genuine advantage is that money you pay in stays reachable. Pay down a mortgage and that cash is gone until you refinance; pay down a HELOC and you can draw it back tomorrow. That flexibility is the product. The risks are that the rate floats, and that a lender can freeze or reduce the line — which happened widely in 2008 and 2009.
We did the full math on this one
There is a popular strategy that says to replace your mortgage with a first-position HELOC and pay your house off in six years. We built a day-by-day model to test it and published every formula, including a calculator for your own numbers. Read the full HELOC vs mortgage breakdown →
Advantages
- Draw only what you need, when you need it
- Interest charged only on the drawn balance, daily
- Repaid funds become available again
- Often little or no closing cost
- Payment falls as the balance falls
- Excellent as a standby emergency facility
Trade-offs
- Variable rate — your payment can rise
- Interest-only minimums mean nothing forces the balance down
- Payment shock when the draw period ends
- The lender can freeze or reduce the line
- Your home is the collateral
- Easy to treat as spending money
Home Equity Loan (HELoan)
Home Equity Loan
The fixed-rate siblingOne lump sum, one fixed rate, one fixed payment — a second mortgage behind your existing first.
Everything people like about a HELOC's flexibility is what some borrowers dislike about it. If you know exactly what you need — a $60,000 kitchen, a specific debt payoff — a home equity loan hands you the money once, at a rate that cannot move, with a payment that will be identical in year eight. There is no draw period cliff and no temptation to keep drawing.
The trade is flexibility. Repaid principal does not become available again. If you find you needed more, that is a second application.
Advantages
- Fixed rate — immune to rate moves
- Predictable payment for the whole term
- Principal reduction is built in, not optional
- Keeps a low first-mortgage rate untouched
- Simple to budget around
Trade-offs
- No re-draw — repaid money is gone
- Interest starts on the whole sum immediately
- Usually has closing costs, unlike many HELOCs
- Rate is typically a little above a HELOC's starting rate
- Your home is the collateral
Cash-out refinance
The third way to reach your equity: replace your existing mortgage with a larger one and take the difference in cash. One loan, one payment, usually a fixed rate.
The question that decides it is your current rate. If you are sitting on a 3% mortgage, refinancing the whole balance to today's rates to extract equity is usually an expensive way to borrow — you are repricing every dollar you owe, not just the new ones. A second-position HELOC or home equity loan leaves that first mortgage alone. If your existing rate is at or above current market, a cash-out refinance often wins outright.
| HELOC | Home equity loan | Cash-out refi | |
|---|---|---|---|
| You receive | A credit limit | A lump sum | A lump sum |
| Rate | Usually variable | Fixed | Usually fixed |
| Touches 1st mortgage? | No | No | Yes — replaces it |
| Re-borrow later? | Yes | No | No |
| Closing costs | Often $0 | Moderate | Full loan costs |
| Best when | Need is ongoing or uncertain | Need is known and fixed | Your current rate is already high |
DSCR and bank statement loans
Two loans for people the standard rulebook handles badly: landlords and the self-employed.
DSCR — Debt Service Coverage Ratio
The property qualifies, not youFor investment property. The lender compares the rent the property brings in against the payment it must cover. If the rent covers the payment, the deal works — your personal income, tax returns and debt-to-income ratio largely stay out of it. A DSCR of 1.0 means rent exactly equals the payment; most lenders want 1.0 to 1.25 or better.
For an investor with several properties, this is often the only sane path: conventional underwriting starts choking on your debt-to-income ratio long before your portfolio is actually in trouble.
Advantages
- No personal income documentation
- No limit on financed properties at many lenders
- Can close in an LLC
- Faster than full-doc underwriting
- Scales with a portfolio
Trade-offs
- 20–25% down typically required
- Rates above conventional
- Investment property only
- Prepayment penalties are common
- Weak rents sink the file regardless of your income
Bank statement loans
For real self-employed incomeIf you are self-employed and good at managing taxes, your return shows a fraction of what you actually earn. Conventional underwriting reads that net figure and declines you. A bank statement loan instead uses 12 or 24 months of deposits to establish income.
The whole point: it stops punishing you for legitimate business deductions. You pay a higher rate for that, and it is often worth it — particularly if you refinance to conventional later once your returns tell a friendlier story.
Advantages
- No tax returns required
- Deposits establish income, not net profit
- Personal or business accounts accepted
- Available on primary, second and investment homes
- Higher loan amounts than a return-based file allows
Trade-offs
- Rates above conventional
- Larger down payment, commonly 10–20%
- Usually needs two years self-employed
- Reserve requirements are real
- Fewer lenders offer it — shopping matters
Down payment assistance
The most common reason people who could comfortably afford a payment do not buy is the down payment. Arizona has genuinely good programs for this, and they are chronically under-used because buyers assume they will not qualify.
Assistance generally arrives in one of three shapes:
- Grants — money that is not repaid at all.
- Forgivable second liens — a silent second mortgage that is written off over time, often three to five years, as long as you stay in the home.
- Repayable second liens — a real second loan, often at a very low rate, sometimes deferred until you sell or refinance.
Most programs require a homebuyer education course, income under a limit, and the home to be your primary residence. Many do not require you to be a first-time buyer, and where they do, “first-time” usually just means you have not owned in the last three years. It costs nothing to ask, and the answer surprises people regularly.
Worth one phone call
Assistance programs open, close and change funding through the year. If a program was closed when you last looked, that is not a permanent answer. Call (520) 255-2318 and we will check what is actually open this week.
Fixed rate vs adjustable rate
A fixed rate never changes. An adjustable rate (ARM) is fixed for a starting period — the 5 in a 5/6 ARM means five years — and then adjusts on a schedule against an index, within caps written into your note.
The honest way to choose: an ARM is a bet on time, not on rates. If you are confident you will sell or refinance inside the fixed period, the lower start rate is close to free money. If there is a realistic chance you are still in that loan when it starts adjusting, you are taking real risk, and the caps — first adjustment, periodic, and lifetime — tell you exactly how much. Read them before you sign, not after.
| Fixed rate | ARM | |
|---|---|---|
| Payment certainty | Total, for 30 years | Only during the fixed period |
| Starting rate | Higher | Usually lower |
| If rates fall | Refinance to capture it | May adjust down on its own |
| If rates rise | Nothing happens | Payment rises within caps |
| Best for | Staying put; wanting to stop thinking about it | A known, shorter horizon |
Mortgage insurance, explained once and properly
Mortgage insurance protects the lender, not you. You pay it because you are putting less than 20% down. It is not a scam and it is not optional — but the differences between programs are worth real money, and this is where borrowers most often overpay by choosing the wrong loan.
| Program | What you pay | Does it ever end? |
|---|---|---|
| Conventional | PMI, monthly, priced on credit and down payment | Yes — request at 80% LTV, automatic at 78% |
| FHA | 1.75% upfront plus an annual premium | Usually not — life of loan under 10% down; 11 years at 10%+ |
| VA | One-time funding fee only | There is no monthly MI at all |
| USDA | 1% upfront plus 0.35% annually | Runs with the loan, but it is the cheapest ongoing fee |
Read that FHA row against the conventional row and you have the single most valuable thing on this page. Two borrowers with identical homes and payments can end up tens of thousands apart over a decade purely because one had insurance that ended and one did not.
Closing costs, points and escrow
What closing costs actually are
Closing costs are every fee to originate and record the loan and transfer the property. They commonly land somewhere around 2% to 5% of the purchase price, and they fall into three groups: lender fees (origination, underwriting), third-party fees (appraisal, title, escrow, recording), and prepaids — which are not really costs at all, but your own taxes and insurance funded in advance.
Discount points
A point is 1% of the loan amount paid upfront to lower your rate. Whether it is worth it is pure arithmetic: divide the cost by the monthly saving to get your break-even in months. If you will not still hold the loan then, buying points loses. Ask for that break-even number in writing — any honest originator will hand it over.
Escrow (impound) accounts
Most loans collect a twelfth of your annual property taxes and homeowners insurance with each payment and pay those bills for you. It is why your payment moves slightly year to year even on a fixed-rate loan — the loan part never changed, your tax bill did.
The document that matters
Your Loan Estimate is standardised by law precisely so you can compare lenders honestly. Get one from everyone you are considering and compare page 2, line by line. Interest rate alone tells you very little.
The process, step by step
- Pre-qualification — a conversation and a soft look. Free, fast, gives you a working budget.
- Pre-approval — real documents, real credit pull, real underwriting review. This is what makes your offer credible to a seller.
- House hunting — with a number you can actually rely on.
- Offer accepted — the clock starts; we order the appraisal and open the file.
- Processing — documents gathered, verified and packaged. This is where responsiveness genuinely shortens your close.
- Appraisal — an independent valuation for the lender.
- Underwriting — the decision. Expect conditions; they are normal, not a bad sign.
- Clear to close — conditions satisfied, figures finalised.
- Closing Disclosure — final numbers, delivered at least three business days before signing. Read it against your Loan Estimate.
- Signing and funding — you sign, the loan funds, the deed records, you get the keys.
Between application and closing, change nothing
No new credit cards, no car loans, no financed furniture, no job changes if avoidable, no large unexplained deposits, and do not move money between accounts without telling us. Underwriting re-checks before funding, and files genuinely fall apart here — usually over something the borrower thought was too small to mention.
Questions that change the math
These are the things people actually type into Google before they call a lender. Each one can move your payment, your timeline or your approval — and each one gets answered wrong on the internet constantly.
Can I have two FHA loans at the same time?
Usually no — FHA is a primary-residence programme and the general rule is one at a time. But there are real exceptions: relocating for work beyond a reasonable commute, a documented increase in family size, leaving a jointly-owned home after divorce, or a co-borrower buying their own home. Each needs documentation and lender sign-off. If you are moving and want to keep the first house as a rental, ask before you list it — the order you do things in matters.
How do I get rid of PMI?
On a conventional loan you can request cancellation once you reach 80% loan-to-value, and the servicer must cancel automatically at 78%. If your home has appreciated, a new appraisal can get you there years early — that one phone call is often worth hundreds a month.
On FHA, with less than 10% down, the premium runs for the life of the loan. There is no cancellation request that works. The exit is refinancing into a conventional loan once you have the equity and the credit. See mortgage insurance for the full comparison.
Can I roll closing costs into the loan?
Sometimes, and the distinction matters. On a refinance you can usually finance them into the new balance. On a purchase you generally cannot add them to the loan — but you have two other routes: negotiate seller concessions (the seller pays them, within programme limits), or take a lender credit by accepting a slightly higher rate. Neither is free; both beat not closing.
Do biweekly or extra payments actually work?
Yes, and the mechanism is simpler than the services that charge for it. Paying half your payment every two weeks produces 26 half-payments a year — 13 full payments instead of 12. That one extra payment typically removes four to six years from a 30-year loan.
You do not need to pay anyone to do this. Just pay a little extra each month and tell the servicer to apply it to principal. Beware third-party "biweekly programmes" charging a setup fee plus a monthly fee for something you can do for nothing.
Should I pay the house off early, or invest instead?
Honest answer: it is a maths question with a feelings component, and both matter.
The maths: paying down a 6.5% mortgage is a guaranteed 6.5% return. Investing might beat that over decades — it also might not, and it is not guaranteed. Compare after tax and be realistic about the returns you will actually achieve, not the ones in the brochure.
The order most planners would agree on: employer match first (that is free money), then high-interest debt, then emergency fund, then the choice between extra principal and investing. And if owning outright lets you sleep, that is a legitimate reason — not every financial decision has to be optimal to be right.
Can I finance a manufactured or mobile home?
Often yes. FHA, VA, USDA and conventional all have manufactured-housing options, but the home generally must be on a permanent foundation, titled as real property rather than a vehicle, and meet HUD construction standards (built after June 1976). Single-wides are harder than double-wides. A home still titled as personal property usually needs chattel financing, which is a different and more expensive product. In our part of Arizona this comes up regularly — bring us the specifics.
Can I get a loan for land, or a home on acreage?
A house on acreage is financeable through most programmes. What complicates it is the appraisal: large parcels, outbuildings, barns and shops can be difficult to value because there are few comparable sales, and some programmes cap how much of the value can sit in land rather than the house.
Raw land alone is a different product — typically a land loan with a larger down payment and a shorter term, not a mortgage. If the plan is to build, construction-to-permanent financing rolls the land, the build and the final mortgage into one. Bring us the parcel and we will tell you honestly what is available.
Glossary
- APR
- Rate plus certain financing costs, expressed as one yearly figure. Designed for comparing offers, not for computing your payment.
- LTV
- Loan-to-value. Loan divided by the home's value. Drives pricing and mortgage insurance.
- DTI
- Debt-to-income. Monthly debt payments divided by gross monthly income.
- PMI
- Private mortgage insurance on conventional loans. Removable.
- MIP
- FHA's mortgage insurance premium. Usually permanent under 10% down.
- Escrow
- Two meanings: the neutral party holding funds during a sale, and the account that pays your taxes and insurance.
- Points
- Upfront money paid to buy a lower interest rate. One point equals 1% of the loan.
- Conforming
- A loan meeting Fannie Mae and Freddie Mac rules, including the size limit.
- Amortisation
- The schedule by which each payment splits between interest and principal.
- Rate lock
- A commitment holding your rate for a set number of days.
- Entitlement
- The amount the VA will guarantee on your behalf. Reusable for life.
- Seller concessions
- Closing costs the seller agrees to pay, within program limits.
- Underwriting
- The formal decision on whether the loan is approved, and on what conditions.
- Loan Estimate
- Standardised three-page disclosure of rate, payment and costs. Your comparison tool.
- Closing Disclosure
- Final figures, delivered at least three business days before signing.
- Draw period
- The window in which a HELOC can be borrowed against, commonly ten years.
Where to go next
About the figures on this page. Loan limits, fees and guidelines shown are 2026 figures: the conforming baseline of $832,750 and high-cost ceiling of $1,249,125, the FHA national floor of $541,287, the VA funding fee schedule, and the USDA 1% upfront and 0.35% annual fees. These change every year, and county-level limits vary. Credit scores and down payments described as “typical” reflect common market practice, not rules — individual lenders set their own requirements.
This is education, not an offer. Nothing here is an offer to extend credit or a commitment to lend, and it is not personalised financial, legal or tax advice. All loans are subject to underwriting approval. Programs, rates, terms and conditions are subject to change without notice, and not all applicants will qualify. Tax treatment of mortgage and home-equity interest depends on your circumstances and how funds are used — please speak with a qualified tax professional.
Prepared by Gerhard De Beer, Mortgage Loan Originator, NMLS #1906123, Arizona DFI License LO-1012185. Last reviewed September 2026.
Not sure which one fits you?
That is the entire job. Bring me your situation and I will tell you honestly which program wins — including when the answer is to wait, or to stay exactly where you are.