Equity in a home is the number source of wealth in the State of Arkansas. Owning your own home has long been known as “the American dream.” But with the increasing prices of homes combined with interest rates that are quite a bit higher than people became accustomed to in recent years, that dream seems out of reach for many—especially young, first-time homebuyers. However, home ownership may be more achievable than many people realize.
“There is a misconception out there about what it takes to buy a home,” said Robert M. “Ro” Arrington, director of Homeownership and Public Finance, Arkansas Development Finance Authority (ADFA). “I’m 60 years old. My parents and their parents had in mind they needed a 20 to 30 percent down payment to buy a home. But today, you can be in a home for as little as a 3 percent down payment on the principal. This is routine throughout the mortgage market.”
Another metric for obtaining a home mortgage is the debt-to-income ratio–the percentage of the debt obligation compared to the income of the buyer or buyers. A rule of thumb used to be that total monthly payment obligations, which would include your mortgage, needed to be 30 percent or less of the total monthly income. But now, some federal programs allow up to 50 percent. ADFA’s Arkansas Home Ownership Program allows as high as 45 percent.
“We are trying to fight the obstacles of people believing they can’t get into a home,” Arrington said. “Times have changed. Now the government is involved in the guarantee of most mortgages. And the Arkansas Home Ownership Program has a mission to help people buy a home. We provide down payment assistance to qualified first-time homebuyers and people within certain income limitations. We will loan them the down payment to coincide with their mortgage. We do this 100 percent in partnership with bank lenders throughout the state.”
The amount the nonprofit Arkansas Home Ownership Program loans is considerable. Not all people who get approved for down payment assistance end up going through with the purchases. The home inspection could fail or there could be other complications. But as of early September, there were 1,327 down payment assistance home loan applications in Arkansas that had been locked in for a total of $232 million.
The target is first-time homebuyers and those who might be disadvantaged, but the program is not only for state residents who have a low income. Arrington said those helped by the program cut across all socio-economic lines.
All loans are originated through existing financial institutions that partner with Arkansas Home Ownership.
“So, in that sense, it is a public/private partnership,” Arrington said. “Banks love us. We operate with a different profile than most financial institutions. We are the ultimate nonprofit. If we generate excess income, we pour it right down into more down payment assistance in the affordable housing space. We don’t get a single taxpayer dollar. We are wholly self-supporting. It is a program that both Democrats and Republicans can love.”
Another common perception right now is that mortgage interest rates are too high. Currently, rates are about 7.125 percent. A year ago, rates were 5.25 percent. A year before that, rates were 3.25 percent. But mortgage production has been steady with Arkansas Home Ownership.
Is affordability a concern in a high interest rate market? Yes. But people want to make that shift from renting to buying.
“They just know they want a house,” Arrington said. “They want to borrow money to do it. And they want help. We make sure homebuyers are offered education courses so they know what they are getting into. We require inspections. We don’t want to be big brother, but help people who are not as sophisticated.”
And while home affordability is a major issue in Northwest Arkansas, Little Rock, Batesville, Texarkana and some other larger cities, a lot of the state still has home prices below the national average.
For more information, see your local lenders and ask about the Arkansas down payment assistance program.
“We work with 300 loan officers around the state,” Arrington said.
For more information, visit homeloans.arkansas.gov.
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