A little bit about mortgages

guest commentary by Ethan Nobles

The folks at the National Association of Realtors (NAR) felt it necessary to send out a bulletin about mortgages at the first of the year.

NAR officials said there has been a lot of confusion about down payments lately so the organization wants to clear up a thing or two. Here at the Arkansas Realtors Association (ARA), we pay attention to such information from the NAR because it often applies to the Natural State.

As anyone who has shopped for a home in the last year knows, the “no money down” loans that were common just a couple of years ago are now difficult to find. The reasons for that are obvious – risky loans got a lot of lenders and borrowers in trouble.

Of course, those zero down loans are still available through the Federal Housing Administration and the Veteran’s Administration for people who meet the criteria for those programs. However, lenders in Arkansas have confirmed that down payments are common with mortgages these days.

But how much of a down payment is typical? One widely available loan is through the Federal Housing Administration (FHA) which has historically been a great option in Arkansas. Borrowers going through the FHA program will be required to come up with a down payment equal to 3.5% of the home’s value.

Of course, conventional mortgages are still widely available. In Arkansas, lenders have said that most borrowers will be asked to come up with a down payment of at least 5%.

That makes a lot of sense, actually. Those zero down loans that were common a couple of years ago were very atypical. For years, people wanting to buy homes were required to come up with down payments and we’re simply getting back to those times. People thinking about purchasing homes are wise to check with a lender and find out what options are available to them.

According to the NAR, people who can afford to put 20% down on a home will enjoy the advantage of not having to take out mortgage insurance. That insurance isn’t cheap and is commonly required of people who put down less than 20% on a home.

The good news about mortgages these days is that they are still widely available, but people wanting them will usually have to come up with a down payment. Some more good news is that interest rates on mortgages are at historical lows.

When you combine those low interest rates with downward pressure on home prices, you wind up with a great situation for buyers. Here at the ARA, we’ve heard that some buyers are waiting to purchase homes in hopes that prices will drop even more.

The data we’ve collected at the ARA since the first of March, however, shows that both prices and inventories have been dropping slightly in Arkansas. It’s anyone’s guess how long those list prices will continue to decline, particularly since the drops have been slight from week to week and we’ve seen weekly increases here and there.

Potential buyers keeping an eye on housing markets, then, need to be aware that mortgage rates are very low and any declines in list prices have been minor. We may well be looking at the best time to purchase a home that we’ve seen in years.