How to Buy a House in Arkansas: 6 Steps

Purchasing a house is a major financial decision that requires careful consideration of various factors, including the local housing market. In Arkansas, the average home value stands at $210,371, which is significantly lower than the national average of $362,481. This difference makes Arkansas an attractive option for those seeking more affordable housing opportunities.

Understanding down payment assistance programs, mortgage types, and state-specific regulations and requirements can ensure a smooth journey toward homeownership in the Natural State. MoneyGeek has compiled the essential pointers to help you navigate the homebuying process in Arkansas, from saving the down payment and choosing the ideal location to finding the best financing option for your particular needs and credit history.

According to the U.S. Census Bureau, the homeowner vacancy rate in Arkansas for the second quarter of 2024 was 1.1%. The homeowner vacancy rate measures the proportion of the homeowner housing inventory that is vacant and available for sale.

A stable homeowner vacancy rate is considered to be 2%, which allows homebuyers some choice and flexibility in where to live. With Arkansas's rate at 1.1%, there is a high housing demand for limited inventory. This scenario can lead to increased competition among buyers, potentially driving up home prices. For homebuyers, this means being prepared to act quickly when a suitable property becomes available.

Before buying a house in Arkansas, closely examine your financial and credit history. A strong financial profile increases your chances of getting approved when applying for a mortgage.

Your credit score plays a pivotal role in determining the mortgage loans and interest rates you qualify for. Lenders view a higher score as a sign of reliability, making you more likely to secure favorable terms. As of the third quarter of 2023, the average credit score in Arkansas WAS 696, according to Experian.

If your credit is less than stellar, specifically in the "poor" range of below 580 on the FICO scale, buying a house remains possible. Yet, getting approved for a mortgage can be challenging. Check the table below to see which mortgage type is ideal for you based on the minimum credit score requirements.

Source: Experian

Your debt-to-income ratio (DTI) helps lenders understand how much of your monthly income goes towards debt payments. This ratio is crucial in determining the amount of mortgage debt you can manage. In Arkansas, the average mortgage debt stood at $158,193 in the third quarter of 2023, according to Experian. This figure highlights the additional financial responsibility that comes with taking on a mortgage.

Monthly debt payments included in your DTI calculation are mortgages, credit card payments, auto loans, student loans, and other debts. Use our debt-to-income ratio calculator below to see your front-end DTI, back-end DTI, and total monthly debt payments. Front-end DTI refers to housing-related payments, while back-end DTI includes all your monthly debts.

Buying a house you can't afford is a common mistake that can lead to financial strain. To avoid this, consider using the 28% rule as a guideline. This rule suggests that you should not spend more than 28% of your monthly income on your mortgage payment. By adhering to this rule, you can ensure that your home remains a place of comfort rather than a source of stress.

The median annual income in Arkansas as of April 2024 was $39,060, according to the U.S. Bureau of Labor Statistics. This translates to a gross monthly income of $3,255 before taxes. Applying the 28% rule, you should aim to keep your monthly mortgage payment at or below $911. This approach helps you manage your finances effectively and keeps your housing costs within a sustainable range.

Use our mortgage calculator below to get a ballpark figure of your monthly mortgage payment in Arkansas.

A down payment is the initial upfront payment you make when purchasing a house. Typically, putting down 20% of the home's purchase price is the standard, but this can be a significant hurdle for many homebuyers. In Arkansas, the average home value is $210,371, which translates to a 20% down payment of $42,074. For homes above the average value, such as $280,000, the down payment increases to $56,000.

Fortunately, saving for a 20% down payment is not mandatory. Many mortgage types allow for smaller down payments. For example, VA loans require no down payment, while FHA loans require just 3.5%. These options can make homeownership more accessible.

If you put down less than 20%, your lender may require you to take out private mortgage insurance. You can use our PMI calculator to estimate your monthly private mortgage insurance premium based on your credit score and down payment.

Several down payment assistance programs in Arkansas make homeownership possible for many people. These programs provide financial support to help cover the initial costs of purchasing a home. For those interested in buying a home, understanding the available resources can be a significant step forward.

Check out the table below for the available down payment assistance programs in Arkansas offered by the Arkansas Development Finance Authority (ADFA).

Finding the right location in Arkansas involves evaluating several key factors. Consider the average house price in the area and how close it is to family, friends, and work or school. Access to public transportation can make commuting easier, while nearby parks, restaurants, and shopping centers add convenience and leisure options.

The cost of living is another factor to weigh when choosing your new home. According to the Missouri Economic Research and Information Center (MERIC), the cost of living index for Arkansas in the first quarter of 2024 was 88.5, which is lower than the national average of 100. Essential expenses to consider include:

• Food
• Healthcare
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Check out the table below to see some cities in Arkansas and their average home values based on recent data. You can also use our cost of living calculator to help you estimate how much you'll need to pay for all the essentials in different locations.

Source: Zillow

Partnering with a real estate agent can greatly accelerate your house hunt in Arkansas. They offer the guidance you need, handle the paperwork, and provide access to a broader range of property options that you might not find on your own. Additionally, agents can recommend other service providers like title companies and inspectors to facilitate your home purchase.

When selecting a real estate agent, perform due diligence by interviewing those with experience in your preferred neighborhoods. Consider the following tips:

• Find someone compatible with your needs and personality
• Verify the agent's credentials, training and licensure
• Ensure they have in-depth knowledge of the area
• Shop around for agents and compare their rates

Finding the best mortgage is a crucial step in the homebuying process. In Arkansas, you can choose from various mortgage types, including conventional, jumbo, FHA, VA, and USDA loans. Additionally, you have the flexibility to select terms ranging from 10 to 30 years. Whether you prefer a fixed-rate mortgage or an adjustable-rate mortgage (ARM), understanding your options is essential. Selecting the right financing option not only increases your chances of approval but also saves you money over time.

Interest rates on a mortgage can change daily, influenced by factors such as the type of mortgage, the lender, and the economy. While the interest rate itself is crucial, the annual percentage rate (APR) provides a more comprehensive understanding of the true cost of borrowing. Unlike the interest rate, the APR includes additional fees, giving you a clearer picture of what you'll be paying over the life of the loan.

As of December 2024, the APR for a 30-year fixed conforming loan in Arkansas stands at 6.48%%. For a 30-year fixed rate FHA loan, the APR is 7.82%. To see the current mortgage rates in Arkansas by mortgage type, please refer to the table below.

Getting pre-approved for a mortgage in Arkansas is an essential step for prospective homebuyers. It involves a thorough evaluation of your financial background, allowing lenders to issue a mortgage pre-approval letter. This letter signifies your creditworthiness and typically remains valid for 60 to 90 days. Pre-approval helps you understand your borrowing capacity, making you a more attractive buyer to sellers.

To start the pre-approval process, you need to submit several documents. These include:

• Proof of income, such as pay stubs or W-2 forms
• Tax returns from the past two years
• Bank statements
• Credit history report
• Identification, such as a driver's license or passport

It's important to distinguish between mortgage pre-approval and prequalification. Pre-approval involves a detailed review of your financial situation and provides a specific loan amount, while prequalification offers a general estimate based on self-reported information. Understanding these differences can help you make informed decisions during your home-buying journey.

Home inspections in Arkansas are highly recommended for homebuyers to ensure they make informed decisions. Inspectors typically examine critical components of a house, such as the roof, foundation, plumbing, electrical systems, and HVAC. The inspection report provides a detailed assessment of these areas, highlighting any repairs needed. This process helps buyers understand the property's condition and potential future costs.

For instance, an inspection might reveal major issues like a faulty foundation or outdated electrical systems. Such findings can significantly affect the home's appraisal, potentially lowering its value. In some cases, buyers may decide to rescind their offer based on the inspection results, opting to avoid costly repairs or safety concerns. This highlights the importance of thorough inspections in the homebuying journey.

In Arkansas, home inspections are regulated by the Arkansas Home Inspector Registration Board. Home inspectors must adhere to the Standards of Practice and Code of Ethics set by the board. They are required to provide clients with a detailed inspection report, covering all items specified by the Standards of Practice.

If you're looking for a home inspector in Arkansas, ensure they are licensed. Check what other clients have said by reviewing online reviews and asking for references. You can also use the Board's registered home inspector roster search tool to find or verify licensed home inspectors in Arkansas.

Home appraisals are a necessary component of the homebuying process in Arkansas. They provide an unbiased estimate of a property's market value, which is critical for both buyers and lenders. In 2023, the median appraisal cost was $500, according to the 2023 Appraisal Survey from the National Association of Realtors (NAR).

A home appraisal differs from a home inspection in that it assesses the property's value rather than its condition. While inspections and appraisals both play roles in the homebuying process, lenders require appraisals to ensure the property is worth the loan amount they are willing to offer. This requirement helps protect the lender's investment by aligning the loan with the property's actual market value.

Closing is the final step in buying a house in Arkansas, where the ownership officially transfers, and you receive the keys to your new property. Your lender will provide a closing disclosure document three days before the official closing. This document outlines your loan terms, projected monthly payments, and closing costs. It's wise to plan a final walk-through of the property with your real estate agent near closing day to ensure everything is in the expected condition. This step ensures a smooth transition into your new home.

On closing day, you will review and complete a variety of paperwork, each serving a critical role in finalizing your home purchase. These documents ensure that all legal and financial aspects of the transaction are properly handled.

• Final loan application: This document verifies your financial details and the terms of your mortgage, ensuring everything aligns with your initial agreement. It is essential to double-check this document for accuracy to avoid any discrepancies.
• Deed transfer: The deed transfer legally changes the property's ownership from the seller to you. This document is crucial for establishing your legal rights to the property.
• Promissory mortgage note: By signing this, you agree to repay the mortgage loan under the specified terms. It serves as a formal acknowledgment of your debt and outlines the repayment schedule.
• Homeowners insurance in Arkansas: This insurance protects your new home against potential damages and liabilities. In Arkansas, it provides coverage tailored to the specific risks in the area, ensuring your investment is safeguarded.

Closing costs are fees paid at the end of a real estate transaction. For more details, visit closing costs. In Arkansas, the average closing costs amount to $2,518 according to NAR. These costs include several fees:

• Appraisal fee: This fee covers the cost of having a professional appraiser evaluate the property's value.
• Title search and insurance fee: This fee ensures there are no liens or claims against the property and provides insurance to protect against any future title disputes.
• Escrow deposit: This is an upfront deposit made into an escrow account to cover future property taxes and insurance premiums.
• Prepaid costs: These are upfront payments for items like homeowner's insurance and property taxes.
• Other closing costs: This category includes various additional fees such as attorney fees, recording fees, and any other charges associated with the transaction.

If you are a first-time homebuyer, learning the different first-time homebuyer programs in Arkansas can also help you achieve homeownership faster. These programs provide resources and support tailored to assist you in navigating the home buying process efficiently.

Buying a house in Arkansas is a significant financial commitment that lasts for years. We've answered some frequently asked questions about buying a house in Arkansas to kickstart your homebuyer journey.