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Updated on Wednesday, February 6, 2019
One of the biggest challenges potential homebuyers face when preparing to buy a home is saving up for the down payment. Their credit scores might be high and their incomes stable, but any number of factors — high rent, student loans, medical bills — might prevent them from getting together the 3.5% minimum needed for FHA loans, let alone the 20% required for several types of conventional mortgages.
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The good news for Arkansans is that there are down payment and homebuying assistance programs for prospective homeowners of all income levels. From forgivable loans to low-interest second mortgages to tax credits, programs throughout the state make the dream of homeownership achievable.
Arkansas first-time homebuyer programs
There are several types of homebuyer assistance programs available in Arkansas, including down payment and closing cost assistance, forgivable loans, grants and a mortgage-based tax credit. There are statewide programs administered by the Arkansas Development Finance Authority (ADFA), as well as city-level initiatives.
Eligibility for Arkansas assistance
The basic requirements for Arkansas housing assistance programs are that you reside in the state and that you take out one of these types of qualifying mortgage: Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA), U.S. Department of Agriculture’s (USDA) Rural Development or Fannie Mae HFA Preferred™ 97% or 95% mortgages (referring to the maximum loan-to-value [LTV] ratios accepted). Eligibility also depends on the type of home you’re buying. Single-family detached homes and duplexes, condominiums and modular homes qualify; manufactured houses do not.
ADFA Move-Up Loan Program
- Available for first mortgages.
- Applies to conventional, FHA, USDA Rural Development and VA loans.
- 30-year fixed-rate terms.
- May be used in combination with ADFA down payment and mortgage credit programs.
- Property type must be one of the following, and manufactured homes are ineligible:
- A single-family detached home
- Modular home
- Qualified duplex
- Home value cannot exceed the Arkansas conforming loan limit of $424,100.
- No income limits are in place for this loan.
- Credit score requirements vary according to loan type:
- HFA conventional loans, USDA and VA loans require a 640 credit score.
- FHA loans require a 660 score.
- Debt-to-income (DTI) ratio:
- FHA, USDA and VA loans: 45% or less
- Conventional loans: 45-50%
- You do not have to be a first-time homebuyer to qualify.
- If you (and your co-borrower, if applicable) are a first-time homebuyer, you must complete a Pre-Purchase Homebuyer Education Class.
How it works
Derrick Rose, ADFA’s director of public information and outreach, suggested that homebuyers begin the borrowing process by getting prequalified for a mortgage with a lender that participates in the organization’s programs. You can search for participating lenders on ADFA’s website. Rose said any of those listed will have issued loans with ADFA’s programs within the past two years, so you can trust that they’re familiar with the products and have helped borrowers navigate them recently.
ADFA Down Payment Assistance (DPA)
- Structured as a second mortgage with the same interest rate as the Move-Up Loan Program.
- Ten-year loan.
- Up to $10,000 available for closing-cost assistance.
- No prepayment penalty.
- Must be used in conjunction with a Move-Up Loan.
- Lending requirements are the same as the Move-Up Loan Program.
- You do not have to be a first-time homebuyer.
- Loan must be used for down payment costs, not debt pay-off or home repairs.
How it works
The DPA option is used in combination with a Move-Up Loan to decrease your out-of-pocket expenses when buying the home, so ask your lender about it early on. They’ll help determine your eligibility and ensure you don’t miss out on the benefit, if you qualify. Learn more about the program at ADFA’s website.
Arkansas Dream Down Payment Initiative (ADDI)
- Designed for low-income borrowers.
- Provides up to 10% of the down payment (capped at $10,000).
- Forgivable loan if you stay in the home for five years.
- Income cannot exceed 80% of the median in the county in which you plan to buy.
- The home’s value must not exceed $250,000.
- A home inspection is required.
- You must complete an eight-hour Pre-Purchase Homebuyer Education Class before closing.
How it works
As long as you remain in the home as your primary residence for five years, you will not have to repay the loan. However, if you decide to move before the five-year mark, you’ll need to repay a prorated amount. So, if you sell the house after three years, you’ll owe the remaining two years’ worth of payments. To find out if you qualify for the ADDI program and to locate a participating lender, visit ADFA’s website.
ADFA Mortgage Credit Certificate (MCC)
- Up to $2,000 annual tax credit you can claim each year that you’re paying interest on the loan.
- Receive the certificate for free if you have an ADFA loan.
- May be combined with other ADFA programs.
- The MCC is only available to the following borrowers:
- First-time homebuyers
- Veterans and veterans’ spouses
- Those buying homes in counties that the Internal Revenue Service (IRS) has designated as areas of chronic economic distress. These include: Bradley, Calhoun, Chicot, Clark, Cleburne, Columbia, Conway, Crawford, Crittenden, Cross, Dallas, Desha, Drew, Jefferson, Lafayette, Lee, Lincoln, Madison, Mississippi, Monroe, Nevada, Ouachita, Perry, Phillips, Prairie, St. Francis, Scott, Searcy, White, Woodruff and Yell
- You must apply for the MCC before closing on the mortgage. Borrowers may not apply for the certificate retroactively.
- Income must not exceed 80% of the median in your county.
- Eligible home purchase prices are capped at $270,000.
- Certificates are only available through approved lenders.
- You must live in the home as your primary residence.
How it works
The MCC does not provide assistance with your initial homebuying costs. Rather, it reduces your annual tax burden by allowing you to deduct up to 50% of the interest you paid on your mortgage in a given year. If you pay $4,000 in interest, you’re eligible to deduct the full $2,000 allowance. But if you pay less — say, $2,500 — you may deduct $1,250.
You will need to submit Forms 1040 and 8396 to claim your mortgage interest. Be sure to secure your certificate before closing so that you do not miss out on this benefit. Learn more about the MCC and where to find participating lenders at the ADFA website.
University District Partnership First-Time Homebuyer Program (Little Rock)
- Receive up to $20,000 toward closing and down payment assistance when buying a new or rehabilitated home in Little Rock’s University District.
- Receive a purchase price reduction subsidy in the form of a grant from the University District Development Corp. (UDDC).
- Program is for first-time homebuyers.
- Amount of assistance received varies based on the homebuyer’s financial need. Income cannot be more than 80% of the median area income, based on family size.
- Property must be “a new or recently rehabilitated home by the UDDC,” and it must be located in Little Rock’s University District.
How it works
The UDDC receives federal funds from the Department of Housing and Urban Development (HUD), via the Little Rock city government. The University District assistance programs are available to first-time homebuyers, whom HUD defines as someone who has never owned a home or who has not owned their principal residence within the past three years. Single parents who only previously owned with their spouses qualify as first-time homebuyers as well.
All participants must receive mortgage pre-approval from a participating lender and complete a Homebuyer Education class before they can apply for the cost-assistance and price-reduction benefits. To learn more about the program and where to find participating lenders, contact the UDDC.
Jacksonville Home Buyers Assistance Program
- Provides assistance for up to half of your out-of-pocket homebuying expenses, capped at $3,000.
- Property must be within the Jacksonville city limits.
How it works
Contact the Jacksonville city government to learn more about the program.
Jonesboro Homeownership Assistance
- Grant to help cover down payment or closing expenses.
- The property must be located in the Jonesboro city limits.
- Home must not be within a flood zone.
- Eligible borrowers are required to complete a Homebuyer Education Course.
- Borrowers’ income must not exceed HUD-defined area income limits. You can find the income requirements on page 5 of the homeownership assistance application.
How it works
To apply for Jonesboro homeownership assistance, you must first be approved for a mortgage. At that point, you can download an application from the Jonesboro city government website. If you’re approved, the city will pay the grant proceeds directly to the title holding company.
Pine Bluff Homebuyer Assistance Program
- Up to $2,000 toward down payment.
- Up to $3,000 toward closing costs.
- Down payment and closing assistance can be combined, up to $5,000.
- Up to $10,000 if you buy in the Turtle Creek subdivision of Pine Bluffs.
- Deferred loan that does not have to be repaid if you remain in the home for at least five years.
- Borrower must pay $500 toward the down payment.
- Income must not exceed established limits based on the area and your family size. You can find the income requirements here.
How it works
The city assistance program must be used in combination with a loan from an approved lender. You can find a list of those lenders on page 4 of the program guide. The Department of Economic and Community Development recommends that you start the process by scheduling an in-person appointment to complete your application before applying for pre-approval or looking at homes.
National first-time homebuyer programs
If you plan to buy a home in Arkansas, make sure you understand the homebuyer assistance programs available based on your area, income and the type of property you wish to purchase. Speak with different lenders to find out whether they participate in the programs relevant to you so that you can maximize your cost-saving opportunities.
Beyond Arkansas’ state- and city-level programs, there are also national programs in place to help first-time homebuyers. Be sure to review LendingTree’s guide to these programs to see which might apply to you and may be used in conjunction with state incentives.