Home Buying in Arkansas

Arkansas homes are primarily single-family, and about 60 percent are owner-occupied. The average age of homes here is nearly 40 years old, which means they're likely to need renovation and/or a thorough inspection to assure structural integrity. According to MLS data, the average buyer is looking for a 3 to 4-bedroom property under $300,000. The median home price in Arkansas is $256,000, the third lowest in the country alongside Iowa.

The price of a home for sale in the state is determined largely by its location. Current data on home sales support the conclusion real estate in Arkansas is currently a buyer's market. That's due to a couple factors, including:

• The listing price of homes for sale is far above the actual selling price (sellers are not getting what they think their homes are worth), and,
• There are more homes on the market than buyers, giving buyers a range of choices and the ability to name their price.

While most states are suffering from a shortage of homes, Arkansas is one of the few states where the inventory is ample. Here, there is a shortage of homes that are affordable to low-income individuals, as the median household income in Arkansas is $55,000. That's well below the median household income for the U.S., which is $74,500.

The most expensive towns in Arkansas include:

• Little Flock, a town of 3,000 a few miles east of Bentonville, where the median home price is $748,000.
• Cave Springs in Benton County, where property values have increased 8 percent in a year to a median of $600,000. The population is 6,000.
• Elm Springs, south of Bentonville, where the median home price is $699,000, with no increase in value year over year. The population is 2,700.
• Goshen, where home values dropped 7 percent to $793,000 (median). The municipality is located in Northwest Arkansas' Washington County and has a population of just 2,100.

Homes in the state's Northwest region are the most expensive and probably the newest. This area is close to the corporate headquarters of Tyson Foods, WalMart, and ArcBest. Employees of those companies may have difficulty affording the area, choosing a longer commute so they can live in an affordable home. The average commute time for residents is about 25 minutes.

The state's temperate climate won't have you reaching for blankets at night, but you will need an umbrella handy because many parts of Arkansas get 50 inches of rain per year. That poses concerns about rot and mold in homes for sale, which are things to watch closely for when shopping for a house.

Storm damage that hasn't been properly or completely repaired may also be an issue. Arkansas experiences dozens of tornados and associated extreme weather events each year. Heavy rain or hail can damage a property. A careful inspection should reveal any structural issues.

Arkansas's utility bills are among the lowest in the country, at an average of $250 per month for electricity, water, sewer, and internet, about $200 less than the national average.

When considering renting vs. owning a home in the Little Rock area, renting saves money in the long run if monthly payments are $1,600. Payments on a home purchase that are about $2,100 per month end up costing almost $800 more over a period of 30 years.

The average home in Arkansas sells after about a month. Buyers should be prequalified for a mortgage to move quickly when the right place is found. Have your 10- to 20-percent down payment ready, and be prepared to act fast. In order to get a mortgage, you need a solid work history and a credit score above 600. (It can be a bit lower if you can make a 20 percent down payment.) Paying off loans and making prompt payments on debts improves your credit score, which is based in almost equal parts on your payment history and your income-to-debt ratio.

Sellers are not required by law to disclose information about a property's condition in Arkansas, which is required in some other states. Here, it's caveat emptor, or buyer beware. Generally, courts will only support buyers if there's an undisclosed material defect, such as a failed septic system or termite infestation, the seller doesn't divulge. That means information about the property's use as a methamphetamine laboratory or the scene of a crime is not something a seller has to tell a buyer. The state does not consider the psychological impact or "stigmatized" properties to be materially impacted by things like violent crime and, therefore, does not require disclosure. So, buyers should proceed with due diligence: trust, but verify.

If you're concerned about moving to an area where tornados have torn up neighborhoods, you may want to look for a home with a storm shelter. Storm shelters are more common than basements, which are rarely part of homes in the South. Shelters can be reinforced rooms or below-ground bunkers that allow a family the comfort of knowing they will be safe. If you find the home of your dreams and want to add a storm shelter, expect to spend another $5,000-$7,000.

Property taxes are an additional expense to take into consideration when buying a home. In general, Arkansas property taxes are lower than the rest of the country's, with the average homeowner paying just over $1,000 per year in property taxes. Across the country, the average cost is $2,900. When all taxes (property, income, sales, etc.) are taken into consideration, Arkansas ranks 21st in the country for the tax burden on residents. The average of taxes collected per person in the state is $4,177 annually.

To avoid local taxes imposed by cities, you may be tempted to purchase property in an unincorporated area, which in Arkansas can be known as "unrestricted." It's best to educate yourself about the potential for unintended consequences if purchasing land that is not under any sort of zoning restriction (unrestricted). A neighbor may decide to open a noisy or nuisance business on an adjacent lot, making it difficult to enjoy your property. Also, note that property listed as "agricultural" may not be taxed that way unless its current use is agricultural. It's best to get information from the county tax office rather than relying upon the seller.

Crime, expenses, property prices, and taxes may narrow property-buying options. The proximity to jobs, school, or other necessities is crucial.

Currently, homes for sale in Arkansas take about a month to go to pending. That doesn't mean there won't be competition for properties in great shape and good locations. If you are determined to purchase a specific property, you should be prequalified for a mortgage, have a significant down payment ready, and be prepared to negotiate a higher bidding price.

A buyer's agent is a local realtor who counsels and guides buyers through the process. This realtor sifts through listings to find those that most closely match your desired location and amenities. They also help you create a strategy for finding and purchasing a home, including writing your offer and negotiating the price.

A buyer's agent should have information ready on the price history of a home, pros and cons of the local area, and provide information on state and local property taxes. In addition to helping with the initial offer, they will help hire an inspector, renegotiate the price if there are structural or systemic issues, and keep the closing process on track.

Buyer's agents now require a contract that discloses their role and payment. Instead of splitting a 5-6 percent commission with the seller's agent, they negotiate their own. The commission can be written into the purchase offer, making it part of the sale price.

The process of prequalifying for a mortgage should educate you about what you can afford. The median household income in Arkansas is $55,000. With that $55,000 income and a $60,000 down payment, a buyer may only qualify for a $220,000 mortgage (about a $310,000 home) in today's high-interest economy. That's because mortgage lenders won't allow people to spend more than 30 percent of their income on mortgage payments.

Start with your local bank when shopping for the best mortgage. Your local bank may extend special benefits to regular customers to get their mortgage business. Elsewhere, a mortgage broker has access to a wide variety of mortgage choices and can find a good deal for you. Your decision may hinge on your knowledge of and comfort level with the mortgage industry.

Because more new homes are being constructed in the South, it may be possible to get a special deal on a home loan through the builder. According to a recent survey, Fayetteville ranked as one of the small cities with the most new construction.

Your income-to-debt ratio and your history of on-time payments are crucial to qualifying for a mortgage. Your credit should be above 600 for government-backed loans, and above 640 for other mortgages. Start early by requesting free copies of your credit report from the major agencies (Experian, Equifax, and TransUnion) to correct any errors.

The federal interest rate sets the tone for individual mortgages, and right now, it's above 7 percent, the highest in years. This translates to higher payments for buyers. That's why many longtime homeowners don't want to sell now: they would end up getting a new mortgage at a higher rate and with higher payments.

If interest rates are low, fixed-rate mortgages can be a good deal, but they're less desirable if rates are high (rates rise and fall incrementally over periods of years). Adjustable-rate mortgages are riskier because the interest rate can change during the loan's term. Jumbo mortgages allow wealthy buyers to borrow more than the federal housing authority limit, about $766,000, in areas of particularly high property values.

Mortgage options include these government programs:

• Arkansas offers special mortgage programs for first-time homebuyers and first-time farmers and ranchers.
• FHA mortgages are tailored for first-time buyers with down payments of less than 5 percent.
• Rural properties may qualify for USDA loans, especially buyers with low incomes but good credit scores.
• Military veterans and their surviving spouses may seek a Veterans Administration-underwritten VA loan. These mortgages do not require PMI and may be used multiple times by qualifying individuals.

Due to extreme weather experienced here, Arkansas homeowners pay some of the highest homeowner insurance rates in the country. It’s expensive to insure your home against loss, including severe weather events like tornados, floods, and violent thunderstorms. The national average cost of homeowner’s insurance is $1,800 per year, but in Arkansas, it can be $3,000-$5,000. Your mortgage lender may require homeowners insurance and mortgage insurance, called PMI, to protect their interest in the property. Arkansas does not require homeowners to have insurance.

A down payment of less than 20 percent triggers a requirement for PMI, or mortgage insurance, by lenders. The cost of PMI varies according to your credit score but is generally between $400 and $1,400 per month in addition to your mortgage payment.

Any outbuildings, such as barns and garages, must be specifically noted in the policy for coverage. Valuable personal possessions inside the home are unlikely to be covered by insurance unless an additional rider is written.

Don't let your guard down when making the largest purchase of your life. Scammers are always waiting to pounce, and the real estate market is no exception. In Arkansas, some may be able to impersonate your realtor's email or pose as a business associate, directing you to make your down payment in their account rather than the realtor's escrow account. Be sure to confirm all major transactions in person, or over the phone, rather than by email.

If fixer-upper homes seem preferable to paying high market prices, keep in mind contractors and tradesmen are in short supply everywhere, and the cost of construction materials, insurance, and fuel is high. Be sure to check the credentials and license of any contractor against the state database, so you're only dealing with knowledgeable tradesmen and not scammers who will take your down payment and never show up.