A typical home in Arkansas is valued at around $188K, which is a 15.1% increase from last year’s home value prices. Arkansas home prices are significantly lower than the national average of around $358K, making it one of the least expensive places to buy a home in the U.S. However, the growth in median home prices in Arkansas is higher than the national average of 13.5%.
Knowing how homebuying works in Arkansas helps you avoid the trap of buying a home that isn’t in your budget. That is why it’s important to be aware of the current real estate trends and the local economy, among other things.
Homebuying can be an exciting yet stressful journey that involves a lot of paperwork. Whether you are buying a home for the first time or are ready to purchase a second home, MoneyGeek guides you in the process.
The average cost of a home in Arkansas is $188,040.
Homebuyers are typically required to meet a specific income, credit score and debt-to-income ratio requirement to qualify for a mortgage loan.
After choosing an ideal location, you should search for the best mortgage loan options and rates with the help of a real estate agent. Then you can then conduct a home inspection, close the loan and sign the necessary documents.
Choose an Ideal Location
The real estate market is nuanced from city to city within the state of Arkansas. You might be able to save money by buying a home in Bigelow where median home prices averages at around $90,860, versus buying a home in Maumelle, which costs around $284,693.
When calculating how much it costs to buy a house in Arkansas, you should consider the cost of the property and the cost of living, access to amenities and more.
Finding a real estate agent could simplify the process of buying a home in Arkansas. Paying a commission is often money well spent if you have an expert that knows the market inside and out.
Real estate agents can help you find a home based on your budget and needs. They handle the paperwork and ensure that your homebuying process runs smoothly. Since they often are aware of average home prices just by looking at your home and neighborhood, they could easily tell you if a home is overpriced or underpriced.
To find an agent:
- Get referrals from friends and family
- Verify the agent’s licensing, experience and training
- Only hire agents with in-depth local knowledge of the area
- Evaluate their number of transactions in the last year
- Ask for their references
- Compare rates between three or more agents
The cost of living in Arkansas averages around $1,732 per month for a one-person household and about $4,127 per month for a four-person household. This includes necessities like housing, food, transportation and more.
If you are looking for the cheapest places to buy a house in Arkansas, the cost of living in a particular area is also important to consider. Before purchasing a home, you want to make sure that the following are also covered in your finances:
To estimate how much it costs to live in a particular city in Arkansas, you can use MoneyGeek’s cost of living calculator.
Although Arkansas is one of the cheapest states to live in, you might be able to save more by choosing a home in a more affordable neighborhood within the state.
While living in the suburbs usually means cheaper costs, you could have limited access to hospitals, schools and malls. On the other hand, having access to these social amenities when living in cities might also mean paying higher living costs.
On average, it’s cheaper to live in cities like Rogers and Russellville, where the cost of living is significantly lower than in cities like Cabot and West Memphis. Taking these factors into consideration ensures that you are choosing a home that is within your total budget.
Calculate Mortgage Rates
Unless you are buying your home using cash, you’ll need to find a mortgage rate that you can afford. Understanding mortgages involves evaluating the various mortgage rate options and loan programs available to you.
This implies having your lender take a look at your financial information, including income, credit history and debt-to-income ratio, in order to identify the mortgage that you are qualified for. You could save thousands of dollars by comparing offers and rates.
Mortgage rates vary based on your chosen type of home loan. Each loan also comes with a different set of criteria in order to qualify, from minimum credit scores to income and debt-to-income ratios. VA home loans, for example, are only offered to veterans and active service members.
The average APR rates in Arkansas for different types of mortgages are:
- Conventional home loans: 6.54%
- VA home loans: 5.76%
- USDA home loans: 3.25%
- FHA home loans: 6.46%
The above APR rates are based on a 30-year fixed-rate term. Choosing a different term and lender typically causes rates to fluctuate. Your lender also looks at your location when determining your mortgage rates.
One of the first things you should do to determine if you can afford to take out a mortgage is to calculate your mortgage payments. Our FHA vs. Conventional home loan calculator shows the price difference between a conventional home loan and a government-backed mortgage.
MoneyGeek’s Arkansas mortgage calculator could also give you a ballpark estimate of your mortgage payments, including principal, interest, property taxes and costs.
Once you have an idea of the upfront costs, APR rates and loan limits, you’ll be able to determine the best mortgage option for your needs and budget.
When you apply for a mortgage, lenders will look at many factors to determine your eligibility and creditworthiness. Some of the factors they would consider are:
- Credit score: Having a good to excellent credit score means that you can get better APR rates and higher loan limits than borrowers with lower credit scores.
- Income: Some lenders may set minimum income requirements in order to qualify for a loan.
- Debt-to-income ratio (DTI): This refers to the percentage of income in relation to your existing debts. Since some lenders may set a certain DTI limit, you may not be able to qualify for a mortgage loan if you have a high DTI ratio.
- Down payment: To get a better APR, you may make a large down payment, which also means a more manageable monthly mortgage payment.
Prepare Down Payment Requirements
Mortgages require a certain amount for a down payment. This is generally as low as 3.5% up to as high as 20% of the total cost of the home. The amount you need primarily depends on the type of mortgage option that you choose.
Some loans, like a VA or USDA home loan, may waive the down payment. This makes homeownership possible even for low-income earners.
A down payment is an upfront cost that you need to pay when buying a home. Conventional loans often require at least 20% down, whereas other types of loans may require 3.5% of the total cost. Other options include VA and USDA loans that require zero-down payment.
Not everyone can qualify for a zero-down payment mortgage loan. This is only offered to residents in eligible rural areas and those who meet a certain minimum income requirement.
Keep in mind that how much you spend for your down payment impacts your interest rates and monthly payments. Typically, putting a large down payment means lower interest rates and lower monthly payments.
If you’re taking out a conventional loan but cannot afford the 20% down payment that is typically required for this type of loan, you may want to check if purchasing private mortgage insurance (PMI) is an option. This insurance protects the lender in case the borrower defaults on their payments.
Mortgage loan options may or may not require private mortgage insurance.
- Conventional loans: PMI is required if you’re putting less than 20% down.
- FHA loans: PMI is not required (you may pay upfront mortgage insurance premiums instead).
- VA loans: No PMI required.
- USDA loans: No PMI required (you may pay a guarantee fee instead).
First-time homebuyers in Arkansas or residents that have not owned a home in the past three years might be able to qualify for a down payment assistance program. If you plan to apply for a home loan in Arkansas but cannot pay a sufficient down payment, it may be worth checking out these options:
- ADFA Move-Up Loan Program: Offers a maximum purchase price of $424,100 with a 30-year fixed rate and no prepayment penalties.
- ADFA Down Payment Assistance Program (DPA): Provides up to $15,000 for a down payment and closing cost assistance.
- The U.S. Department of Housing and Urban Development: Provides housing assistance to low-income earners so they can find alternative programs that could assist them financially in their homeownership journey.
Get Pre-Approved for a Mortgage
When planning to buy a home in Arkansas, you may want to get pre-approved for a mortgage before looking at properties. Some home sellers may require a mortgage pre-approval.
Prequalification is often used interchangeably with pre-approval, but these are different steps in the application process. Prequalifying shows that you are eligible to take out a loan. Often requiring submission of financial documents, getting pre-approved means you already have an amount that’s been granted by your lender.
Necessary documents, such as your personal and financial information, are often required by your lender so that they can review your eligibility. You could be asked to provide information about your income, credit history and debt-to-income ratio.
Other types of mortgage loans may require other documents, including:
- Driver's license
- Social Security card
- Current pay stubs
- Three years of tax returns with W2s
- Bank account statements
- List of credit cards and debts
If you are self-employed, you may also be required to provide your business information, including year-to-date profit and loss statements as well as statements of unpaid accounts receivable.
The length of pre-approval varies between different lenders. Some may take around 10 days to get approved. Others could take longer.
A pre-approval letter shows the lender's commitment to loaning you a certain amount. Being able to show a pre-approval letter to your seller often speeds up the process of homebuying.
Keep in mind that once you receive a pre-approval letter, the offer only stays valid for 30 to 90 days. As a result, it is recommended to apply for pre-approval only when you are ready to buy a home. Otherwise, you will have to apply for a new one if you go over the provided time frame.
When you submit a mortgage application, lenders will assess your eligibility by looking at your financial information. This will indicate your eligibility for pre-approval. Granting you a pre-approval letter means that they are willing to lend you a specific amount of money.
There is no limit to the number of pre-approvals you can get. This means that you might be able to apply to different lenders and compare offers. However, some lenders may perform a hard credit check, which could affect your credit score temporarily.
In addition, take note that pre-approvals are only valid from 30 to 90 days. If you haven’t decided on a home after this time frame, you may need to apply for a new pre-approval.
Conduct a Home Inspection
A home inspection identifies the condition of the real estate property and ensures that, if there are any issues, you are aware of any significant problems with the home you are purchasing.
It may also give you the opportunity to negotiate for a lower total amount to account for the cost of upgrades and needed repairs. Some lenders may even require you to conduct a home inspection before they give you a loan.
Registered home inspectors in Arkansas must have completed a course and have passed a state exam for home inspectors. Hiring a registered home inspector ensures that you’re getting a detailed and accurate report of the condition of your potential property. Having a checklist of the things to inspect also ensures that you are aware of safety issues, construction flaws and significant damages.
Home inspections should cover, but not be limited to, the following:
- Exterior surfaces
- Windows, doors and wood trim
- Roof and attics
- Windows and doors
- Surrounding grounds
- Attic and basement
- Heating and cooling systems
- Plumbing system
- Electrical system
- Major appliances
The Arkansas Real Estate Commission requires real estate agents to disclose information, including defects and faults, about the condition of the property being sold. However, it is at the buyer’s discretion to hire their own home inspector for a more objective report. This can help in making a more informed decision about whether to buy the property.
Home inspectors in Arkansas are required to be registered by the state. In addition, inspection laws vary from state to state, and your real estate agent is the best person to consult about any inspection regulations that apply in your area.
Aside from the above standard inspection, you might also want to ask to conduct other home safety checks specific to Arkansas.
Mortgage lenders conduct home appraisals, which involve a thorough inspection of your chosen property that determines the actual value of your home versus the listing price. A home appraiser is also able to determine whether a homebuyer can afford the home he or she chooses.
This step in the process mitigates risk for the lender against borrowers who are likely to default on their payments. The appraisal value of a home also takes into consideration the current market trends, which could affect the increase and decrease of prices.
Close Your Mortgage Loan
Once you finish conducting the home inspection and appraisal, the next step is closing the mortgage loan. Carefully review your loan offer, including any important fees that your specific lender may charge.
During the closing process, there could be fees involved, which you need to include in your budget. For buyers working with a limited budget, down payment assistance programs in Arkansas can help cover some of the closing costs.
If you decide that the terms of the loan are acceptable to you, you can start signing the required documents. Carefully read every document that you sign and ensure that they have the same as the agreed terms and conditions.
- Final loan application: Ensure that all information is updated and correct before signing the loan application. Any change in your financial status must be disclosed to your lender.
- Mortgage note: This document legally binds you to pay your mortgage and details the mortgage amount, interest, payment dates and terms.
- Property deed: This contains the details about the property and the transfer of ownership to the buyer.
- Closing disclosure: The lender is mandated by law to provide the closing disclosures at least three business days after closing on the mortgage.
You may need to consider closing costs, which range between 2% to 5% of your total purchase price. The following are often what you can expect to pay during the closing of your loan.
- Origination fee: This fee varies across lenders, and it is often a small percentage of your loan amount. Lenders charge an origination fee for their services.
- Escrow: This account includes property tax, homeowners insurance, mortgage insurance and annual funding fees.
- Title search charges: You need to pay for the costs of the title search, which ensures that the property is rightfully in your name.
- Lender fees: Lender fees include the appraisal costs.
- Third-party fees: You may also be charged other third-party fees, which often involve inspection fees, attorney fees, homeowners association transfer fees and more.
From determining the best place to buy a home in Arkansas through the help of your real estate agent to conducting a home inspection and handling the paperwork for a seamless homebuying process, MoneyGeek’s homebuyer guide ensures that you’re not missing out on any important steps when buying a home in Arkansas.
Once you’ve received the funds for your loan, the next step is ensuring that you make your first payment on time. You can see your payment due date by checking the documents that you’ve signed. To avoid making late payments that possibly incur interest, you could set up an automatic payment from your checking account to your lender.
Arkansas Homebuying Details
In Arkansas, homebuyers can choose between conventional and government-backed loans. Those who cannot afford a sufficient down payment might still be able to purchase a home through various down payment assistance programs.
As you shop for a home in Arkansas, keep in mind that although median prices in the state are statistically much cheaper than in other states, it’s still important to consider other factors like cost of living and accessibility to specific amenities that you might need.
The Arkansas Homeowner Assistance Fund (ARKANSASHAF) is a federally-funded program that helps low to moderate-income homeowners get through financial hardships through assistance on a mortgage, defaults, foreclosures and loss of utilities.
The Mortgage Credit Certificate lets eligible first-time homebuyers in Arkansas claim a tax credit of up to 35% of their mortgage interest. This can be up to a maximum of $2,000 per year. The credit can be claimed for the lifetime of the home loan.
First-time homebuyers in Arkansas can take advantage of the Arkansas Dream Down Payment Initiative (ADDI) program. This gives them up to $25,000 on a second mortgage loan for a down payment and closing costs.
Frequently Asked Questions About Buying a Home in Arkansas
MoneyGeek answered commonly asked questions from homebuyers about how to buy a home in Arkansas.
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- Homeloans Arkansas. "ADFA Down Payment Assistance Program (DPA)." Accessed October 22, 2022.
- Homeloans Arkansas. "ADFA Move-Up Loan Program." Accessed October 22, 2022.
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