Arkansas FHA Loan Requirements: Everything You Need To Know

Buying a home is an exciting milestone but qualifying for a mortgage can be challenging especially for first-time buyers with less-than-perfect credit or limited funds for a down payment. If this sounds familiar, you may want to consider getting an FHA loan. FHA loans are backed by the Federal Housing Administration and have more lenient requirements than conventional mortgages.

In this comprehensive guide, we’ll explain FHA loan requirements in Arkansas so you can determine if this type of financing is right for you.

What Are The Benefits Of An FHA Loan?

Here are some of the biggest advantages FHA loans offer to homebuyers in Arkansas:

• Low down payment. You only need 3.5% down for an FHA loan. This minimum down payment requirement makes these mortgages much more accessible to buyers who don’t have tens of thousands saved up.

• Lower credit score requirements. Many lenders allow credit scores as low as 580 for FHA loans. For a conventional mortgage, you typically need a score of 620 or higher.

• Loosen debt-to-income ratio. Your front-end DTI can go up to 31% of your gross monthly income and back-end DTI up to 43%.

• No income limits. FHA doesn’t set minimum or maximum income thresholds. As long as you meet the payment requirements, your income won’t disqualify you.

• Allows gifts. Your down payment can come partially or fully from gifts from family, employers, or nonprofits.

• No prepayment penalties. You can pay off an FHA loan early without incurring extra fees.

Arkansas FHA Loan Limits

The maximum loan amount you can borrow with an FHA mortgage depends on what county you live in. For 2023, FHA loan limits in Arkansas range from $346,760 to $970,800.

Most counties fall under the “floor” limit of $346,760 for a single-family home. However, there are higher limits in more expensive housing markets:

• Benton County: $970,800
• Pulaski County: $970,800
• Washington County: $970,800

FHA also insures mortgages for multifamily properties of 2-4 units. The 2023 limits for 2-4 unit properties in Arkansas are:

• 2 units: $443,250
• 3 units: $541,550
• 4 units: $671,050

Minimum FHA Credit Score Requirements

To get the best terms and rates on an FHA mortgage, most lenders want to see a credit score of at least 580. Some lenders may approve borrowers with scores as low as 500, but less than 580 will require a higher down payment.

Here are the FHA minimum down payment requirements based on your credit score:

• 500-579 – 10% down
• 580+ – 3.5% down

In addition to your score, lenders will look at your overall credit profile, including your payment history, types of credit used, and debt-to-income ratio. Past foreclosures and bankruptcies can make getting approved more difficult.

FHA Debt-To-Income Ratio Limits

Lenders use your debt-to-income ratio to determine if you can comfortably afford your mortgage payment and other monthly debts. FHA has two DTI ratios – front-end and back-end:

Front-end DTI: Includes your new mortgage payment and any homeowners association dues. Cannot exceed 31% of your gross monthly income.

Back-end DTI: Consists of your front-end DTI plus all recurring debts like credit cards, auto loans, student loans, child support, etc. Back-end DTI cannot go over 43%.

Meeting these DTI requirements is key to qualifying for an FHA loan. If your ratios are too high, you may need to pay down debts or opt for a less expensive property.

FHA Home Requirements

The property itself must meet certain standards to be eligible for FHA financing. Here are the most important things to know:

• Must be an existing property or new construction. No manufactured or mobile homes.

• Must be your primary residence – no vacation homes or investment properties.

• Must be a single-family home, townhouse, condo or multifamily home of 2-4 units.

• Condos must be FHA approved. Check the FHA condo approval list.

• Must pass an FHA appraisal ensuring the home meets minimum property standards.

FHA appraisals are strict – any major repairs or deficiencies must be completed before closing. Common issues are peeling paint, cracked foundations, faulty electrical or plumbing systems.

FHA Loan Requirements For First-Time Homebuyers

Buying your first home with an FHA loan? There are a few extra requirements and tips to keep in mind:

• Homebuyer education. If your credit score is below 640, you must complete an FHA approved counseling course prior to closing.

• Shop for grants and assistance programs. Check if you qualify for down payment or closing cost help through state, county, or city programs.

• Get pre-approved. This shows sellers you’re a serious buyer. Locking in your rate and terms early allows you to make strong offers.

• Hire a real estate agent. Especially for first-timers, having an experienced agent to guide you through the process is invaluable.

• Inspect before making an offer. FHA loans require detailed appraisals to pass. Inspecting early allows you to understand any repairs needed.

• Be prepared to act quickly. In competitive markets, FHA-ready homes go fast. Be ready to view properties and make offers right away.

How To Get Pre-Approved For An FHA Loan

Getting pre-approved ahead of house hunting is one of the smartest things any homebuyer can do. For an FHA mortgage, here’s what lenders need from you:

• Social Security Number
• Income verification – W2s, paystubs, tax returns
• Bank statements
• Debt information – credit report, student loan details, other regular debts
• Down payment source if not from your own savings

Provide these items upfront for a smoother approval process. Your loan officer will review your credit, income, assets, and debts and issue a pre-approval letter stating the mortgage amount, rate, and terms you qualify for.

Shopping For The Best FHA Mortgage Lender

Choosing the right lender for your FHA loan is key – interest rates and fees can vary significantly between lenders. Here are some tips for picking the best FHA mortgage lender:

• Get rate quotes from 3-5 lenders, including banks, credit unions, and online lenders
• Ask about origination fees and closing costs – FHA caps total fees at 3% of the loan amount
• Look for a lender that offers streamlined underwriting to speed up the process
• Read online reviews and complaints to gauge customer satisfaction
• Consider lenders that provide discounts and perks for setting up autopay or having other accounts

Running the numbers with multiple lenders ensures you get the optimal rate and fees combination.

FHA Mortgage Insurance Requirements

With an FHA loan, mortgage insurance is required for the life of the loan to protect the lender from default. There are two costs:

Upfront Mortgage Insurance Premium – 1.75% of the loan amount, paid at closing

Annual Mortgage Insurance Premium – 0.85% of the loan amount, divided into monthly payments

For example, on a $200,000 loan, you would pay $3,500 upfront + $142 extra per month ($200,000 x 0.85% = $1,700/12 = $142).

With FHA loans exceeding 15 years, you may be able to cancel mortgage insurance once you reach 20% equity and meet other requirements.

Alternatives To FHA Loans

FHA loans are a great option for many buyers, but they aren’t the only choice. Here are a few alternatives to consider:

Conventional 97 Loan – 3% down payment with flexible credit requirements. Higher MI rates than FHA.

VA Loan – For veterans and service members. No down payment or MI required.

USDA Loan – For properties in rural areas. No down payment and low rates. Income limits apply.

State/local down payment programs – Grants, loans, and tax credits to assist with down payment and closing costs.

Low down payment conventional loans – 5% down or lower options from Freddie Mac and Fannie Mae. Limited credit flexibility.

Seller financing – The seller helps finance all or part of the mortgage. Must find a willing seller.

Buyer assistance programs – Nonprofits provide financial help including down payment grants and subsidized mortgages.

Talk to a loan officer to go over all your mortgage options beyond an FHA loan.

The Bottom Line

FHA loans can be a great mortgage solution for Arkansas