An increasing number of area residents are hurdling barriers such as tougher lending standards and rising home prices to buy their first home.
Low interest rates and an improving economy are enough to nudge potential buyers to the closing table, said Kay Weiderhaft, mortgage market leader for Bank of Arkansas Mortgage Group.
First-time buyers
Below is the percentage of homebuyers classified as first-time buyers in each age group. Thirty-three percent of all home sales year were to first-time buyers.
• 34 and younger — 68 percent
• 35-49 — 29 percent
• 50-59 — 14 percent
• 60-68 — 7 percent
• 69-89 3 percent
Source: National Association of Realtors
She said about 55 percent of the bank's mortgage applications in the first quarter were from first-time homebuyers and nearly half of those were Hispanic. Millennials, those born roughly between 1981 and 1997, are also starting to enter the housing market at an increased rate.
Northwest Arkansas is following the national trend of an increasing number of new homeowners. The national rate of first-time homebuyers is at its highest level in more than four years and will likely peak in June or July, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.
The report shows first-time homebuyers accounted for 37.6 percent of home purchases nationally in April, up from a 34.3 percent share a year ago.
Tougher lending standards eliminated some conventional loan programs, but first-time homebuyers can get help through federal programs. Some programs require borrowers to complete a homebuyer education course.
Filiberto Moncivais went through Credit Counseling of Arkansas' free monthly class twice before buying his first home. He purchased a three-bedroom, 1,500-square-foot house in Rogers for $115,000. He closed on May 22 and started moving his family of five in the next day. The family lived in a small apartment for a couple of years to save money to buy a house.
"Buying a house is a process and requires sacrifice," said the 32-year-old father of three. "In the end, it's worth it."
Market shift
One reason demand from first-time homebuyers is so strong is that many see owning a home as cheaper than renting, according to the HousingPulse survey.
The Zillow Housing Confidence Index predicts about 5.2 million renters nationwide expect to buy a home this year, up from 4.2 million in 2014.
Moncivais said his mortgage payment is in line with the $750 to $800 lease rate on many area duplexes.
Average apartment rental rates rose $7 per month to $598 between the end of 2013 and 2014, said Brian Donahue, senior associate with CBRE Northwest Arkansas, a commercial real estate brokerage firm.
Increasing home prices will also push up rental rates on investment properties. J.P. Sexton, mortgage loan manager for Arvest Bank in Fort Smith, said home rental rates have increased since 2011, with prices statewide up an average of 25 percent.
Gavin Edwards, principal broker for Synergy Realty Group, said the local rental market is strong because many people remain on the fence about buying a home.
"Part of it is the younger generation is still struggling. Until they know they are going to have a good working environment, they are likely to wait," he said.
Millennials are starting to make up a larger share of homebuyers, accounting for 32 percent of all home sales and 68 percent of first-time purchases, according to the National Association of Realtors.
Weiderhaft said Millennials accounted for about half of Bank of Arkansas' first-time homebuyers in the first quarter.
Banking changes
Potential homebuyers have fewer mortgages choices than they did a decade ago, but that is not necessarily a bad thing, Weiderhaft said.
"What is not happening are the questionable types of loans that were going on in 2006 and 2007," she said, referring to loans requiring little paperwork and a small or no down payment. Loose lending standards were a primary cause of the recession that ran from December 2007 to June 2009.
New standards require lenders to look a bit deeper into a borrower's credit history to make sure all sources of money are identified, Sexton said.
"We are trying to get our customers to be very transparent about where their money is coming from," he said.
The credit history is used to help a borrower prequalify for a loan and then he can start looking at properties and financing options, he said.
"Borrowers are very much like snowflakes: no two are ever alike," he said.
Down payment
Saving enough money for a down payment is often the biggest barrier to buying a home.
Conventional loans typically have lower interest rates, but many first-time homebuyers can't come up with the 10 to 20 percent down payment many of these types of loans require.
A handful of federal programs are designed to help low- to moderate-income people step into homeownership. The Federal Housing Administration has originated nearly one in three purchase mortgages since the housing crisis and nearly 80 percent of those loans have gone to first-time buyers, according to a report by the Urban Institute.
Rosa Sarmiento-Acevedo lives in a two-bedroom apartment with her 4-year-old son, her mother and mother's husband to save money for a down payment.
She secured a federal loan that required a 3.5 percent down payment for the three-bedroom home she is buying for $105,000 in Springdale. She hopes to close on the home next week. Everyone is moving into the house with her.
"I'm just looking forward to moving into something better," she said. "I come from a family where only my grandparents have owned houses in California."
RealtyTrac, an online marketplace for foreclosure properties, reports the average down payment for FHA loans originated in the first quarter was 2.9 percent of the purchase price, while the average down payment for conventional loans was 18.4 percent of the purchase price.
Paul Bynum, owner and principal broker of MountData, a real estate marketing firm, said rising median home prices require larger down payments. The median home sales price in Northwest Arkansas was $165,000 in April compared with $153,700 a year earlier.
"It will be a little harder for first-time homebuyers to qualify," he said. "Right now any home that comes on the market priced under $125,000 doesn't last long."
Moncivais said he spent more than a year to find a house in a location he liked at a price he could afford. He used a federal loan that required a 3.5 percent down payment.
Federal Housing Administration loans require upfront and annual mortgage insurance premiums to protect lenders from a loss if the borrower defaults on the loan. The government lowered the cost of annual insurance premiums in January. The annual rate on a 30-year fixed FHA loan dropped from 1.35 percent to 0.85 percent in January, meaning the cost on that $200,000 loan dropped from $2,700 to $1,700.
"Cheap FHA financing looks like it's making first-time homebuyers come out in force," Tom Popik, research director for Campbell Surveys, stated in the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.
Other programs
The U.S. Department of Agriculture and the U.S. Department of Veterans Affairs also offer first-time homebuyer assistance programs.
The Agriculture Department provides home loans through the Rural Development program. It helps low- and moderate-income borrowers buy homes in eligible rural areas by requiring small or no down payments.
The 2014 Farm Bill defines areas with populations of up to 35,000 that are rural in character eligible for Rural Housing Programs. The maps outlining eligible areas are based on census numbers, and new maps released in February show the Northwest Arkansas eligible area continues to shrink. Much of the area along the Interstate 49 corridor and much of the land between the area's four biggest towns isn't eligible for the loans.
Shrinking available rural homes have shifted some lower income first-time homebuyers away from Rural Development loans to Federal Housing Administration programs. Sexton said around 26 percent of Arvest first-time homebuyers are utilizing a Federal Housing Administration or Rural Development loans.
Moncivais also used an Arkansas Development Finance Authority program to buy his house.
The American Dream Down payment Initiative provides up to 6 percent of purchase price, up to $10,000, to help with down payments and closing costs. The borrowers must be a first-time homebuyer and the program has income limits based on the county where the property is located. The loan is forgivable after the borrower lives in the home for five years.
The state agency also operates the Down Payment Assistance Program that provides loans up to $6,000 for down payments and closing costs. These funds must be paid back in 10 years. A monthly amount is added to the borrower's mortgage payment
Bill Robertson, director of operations for Credit Counseling of Arkansas, said people looking to become homeowners need to know their options. He leads a free, eight-hour homebuyer education class each month that includes information ranging from getting preapproval to having a budget.
He said the classes average about 20 people each month. He had 52 people signed up for Saturday's class.
"Interest rates staying low has really got people thinking about buying a house," he said. The rate on a 30-year fixed mortgage was 4.03 percent on June 3.
NW News on 06/07/2015