MoneyGeek analyzed Arkansas first-time homebuyer programs to help you find the best one for your needs. Our analysis includes zero-down-payment and low-down-payment options for those who cannot meet the traditional 20% down payment requirement.
What Is a First-Time Homebuyer Program & How Can It Help?
When planning to buy a home, one of the major costs you need to keep in mind is the mortgage down payment. The down payment is the initial deposit you will need to pay upfront. Homebuyers who can raise up to 20% for down payments may qualify for lower interest rates on conventional loans. However, there are also options for those who need assistance with down payment expenses.
There are various down payment assistance programs that you can take advantage of as a first-time home buyer. In Arkansas, the ADFA Down Payment Assistance Program offers up to $15,000 for down payment and closing cost assistance. Apart from ADFA mortgage programs, homebuyers in Arkansas can also access zero-down-payment programs, like USDA and VA loans, or low-down-payment options, like conventional and FHA loans.
If you are a first-time homebuyer, the right program for your first mortgage will depend on your background, finances and goals.
Zero-Down-Payment Loan Programs
With a zero-down-payment loan program, the homebuyer does not have to pay a down payment upfront to get a home loan. The two main types of zero-down-payment programs are VA and USDA home loans.
If you are a first-time homebuyer in specified rural areas, you may be eligible for a USDA home loan. USDA loans are zero-down-payment mortgage loans available to low- and mid-income rural homebuyers. USDA loans are issued through the U.S. Department of Agriculture under the Rural Development Guaranteed Housing Loan program.
To be eligible for a USDA home loan, you must meet the USDA income eligibility requirements for your area. The property to be purchased also needs to be less than 2,000 square feet and be located in an eligible rural area with a population of less than 35,000.
With a USDA loan, you can choose from three main mortgage types: Single-Family Housing Direct Home Loans, Section 502 Guaranteed Rural Housing Loans or the Section 504 Home Repair Program. However, keep in mind that USDA loans do not allow adjustable-rate mortgages, and all loan options will have a fixed term.
If you are a veteran, active-duty military member or eligible surviving spouse, you may be eligible for a VA home loan. This type of home loan does not require a down payment or private mortgage insurance (PMI).
Compared to other mortgage types, VA loans come with relatively low interest rates, which can make it easier for borrowers who qualify to own a home. However, to be eligible for a VA loan, you will be assessed based on the length of your service and duty status. If you meet the eligibility requirements, you can then apply for a Certificate of Eligibility (COE) from the Department of Veterans Affairs.
Since VA-backed home loans are offered through private lenders, you may also need to meet the lender’s credit and income requirements. VA home loans can be used for various purposes, including as a first or second mortgage on a primary residence, refinancing, construction or as a mortgage on a secondary or rental property.
Low-Down-Payment Loan Programs
If you are looking to buy a home in Arkansas with less than 20% down, you can opt for a low-down-payment loan program. FHA and conventional home loans are common types of low-down-payment home loans.
Fannie and Freddie (Conventional) Loans
Most first-time homebuyers get financing from private lenders in the form of conventional home loans. This type of home loan is funded by private lenders and is widely available. However, minimum requirements on income and credit can vary widely depending on the lender.
Borrowers can qualify for this type of loan with less than a 20% down payment. However, in such a case, the borrower will need to purchase private mortgage insurance (PMI).
Conventional loans are available in two forms: conforming conventional mortgages, which adhere to Freddie Mac and Fannie Mae guidelines, or nonconforming conventional mortgages, which follow guidelines established by lenders.
To qualify for a conventional home loan, most lenders will require a minimum credit score of 620 and a minimum down payment of 3%. However, keep in mind that individual lenders may have different requirements, and the minimum down payment can be as high as 10%.
FHA loans are a low-down-payment option for homebuyers in Arkansas who have less than 20% saved for down payments. These types of loans are government-backed mortgages that are offered by FHA-approved private lenders.
FHA loans are popular among first-time homebuyers because they attract low interest rates, and you can qualify with a down payment starting from just 3.5%. However, there are minimum eligibility requirements to qualify for an FHA loan. Borrowers need to have a minimum FICO score of 500 and a debt-to-income ratio of less than 56.9%. However, keep in mind that for the lowest FICO scores, a minimum down payment of 10% is required. Borrowers are also required to purchase mortgage insurance.
It is important to note that FHA loan limits can vary depending on your location. To find out the limits for your area, you can use the Department of Housing and Urban Development (HUD) online calculator.
In some cases, homebuyers may want to purchase an old home and upgrade it. FHA 203(k) home loans are ideal for such situations since they combine a regular mortgage with a construction loan. FHA 203(k) home loans are government-backed mortgages offered by FHA-approved private lenders. Like other FHA loans, 203(k) home loans have low down payments and flexible minimum requirements.
Homebuyers can qualify for 203(k) home loans with a credit score of 500 or higher. Some private lenders may have different minimum requirements and may require FICO scores of at least 620. However, keep in mind that if your credit score is 500, you will be required to have a down payment of at least 10%. Borrowers with high credit scores only require a minimum down payment of 3.5%.
Homebuyers can use 203(k) home loans for various renovations and upgrades but keep in mind that the cost of the rehabilitation must be at least $5,000. FHA mortgage limits for your location will apply.
Zero-down loans: Zero-down programs are home loan options that do not require the buyer to have any down payment to qualify.
USDA loans: USDA is a home loan that does not require any down payment and is available to low- to mid-income homebuyers in eligible rural areas through the U.S. Department of Agriculture.
VA loans: VA loans are zero-down home loans available to veterans, active-duty military and their families. Typically, they have low interest rates and do not require private mortgage insurance (PMI).
Low-down-payment loans: Low-down-payment programs are home loans that only require buyers to have a 3.5% down payment.
Fannie & Freddie loans: These are private mortgages (also known as conventional loans) that are offered by private mortgage lenders. These loans are not government-backed but may conform to Fannie & Freddie guidelines.
FHA loans: These are government-backed mortgages that offer flexible minimum requirements and require a low down payment of 3.5% to 10%, depending on your creditworthiness.
FHA 203(k) loans: This is a type of FHA loan that combines a standard mortgage with a construction loan and is ideal for buyers who want to purchase an old property and renovate it.
Arkansas Homebuyer Programs
If you are looking to buy a home in Arkansas, some of the programs available to you include the Arkansas Dream Down Payment Initiative (ADDI) and the ADFA Move-Up Loan program.
This program offers homebuyers in Arkansas affordable 30-year fixed-rate mortgages with no prepayment penalty. The maximum purchase price is capped at $424,100, but this program can be combined with other ADFA homebuying incentives.
ADFA Mortgage Credit Certificates
The Mortgage Credit Certificate allows eligible first-time homebuyers in Arkansas to claim a tax credit of up to 35% of their mortgage interest, up to a maximum of $2,000 per year. This credit can be claimed for the lifetime of the home loan.
Arkansas Dream Down Payment Initiative
First-time homebuyers in Arkansas who qualify for the ADFA Move-Up loan can take advantage of the Arkansas Dream Down Payment Initiative (ADDI) program to get up to $25,000 on a second mortgage loan for down payment and closing costs.
FAQs for First-Time Homebuyer Programs in Arkansas
MoneyGeek answered frequently asked questions to help you understand your options as a first-time homebuyer in Arkansas.
- Arkansas Development Finance Authority. "ADFA Down Payment Assistance (DPA)." Accessed September 25, 2022.
- Federal Housing Finance Agency. "Fannie Mae and Freddie Mac." Accessed September 25, 2022.
- USDA. "Rural Development Single Family Housing Direct Loan Program." Accessed September 25, 2022.
- U.S. Department of Housing and Urban Development. "203(k) Rehab Mortgage Insurance." Accessed September 25, 2022.
- U.S. Department of Housing and Urban Development. "FHA Mortgage Limits." Accessed September 25, 2022.
- U.S. Department of Veterans Affairs. "Eligibility Requirements for VA Home Loan Programs." Accessed September 25, 2022.