Talk around office water coolers and in places where people gather to discuss the fate of the economy inevitably returns to the question of what to do to make the "situation" better.
The misconceptions regarding the availability of housing loans in the area is something that area banks hope to resolve. The myths about financial institutions drastically cutting the numbers of housing loans, the government bailout of huge banks and the near death of the American auto industry are factors which have forced Americans to become more cautious with their hard earned dollars. As a result, consumers are likely to spend more time researching potential options before making a long term financial decision.
Many potential home buyers are under the assumption that during the economic downturn buying a home is completely a ludicrous idea and that banks are not loaning to anyone with less than the best credit scores. This is simply untrue.
In a questionaries completed by representatives of First National Banking Company (FNBC) and Bob Evins, Community Bank President for Liberty Bank of Arkansas Evins clarified the fact that interest rates are at historial lows and said, "If someone has been thinking of refinancing, building or buying a home, now is a great time." FNBC also said it was "an opportune time to buy or refinance a home."
When asked about responsible amounts to borrow for a home to help prevent potential overload and perhaps eventual foreclosure, Evins said it was difficult to determine an exact percentage one should borrow in respect to income debt ratio, but 43 percent was a good estimate. He further stated that this number could fluctuate with a variety of factors such as past credit performance. But Evins did say, "It's difficult to state an amount and it apply to everyone. Usually though, the monthly principal and interest payment should not exceed 31 percent of gross monthly income; however, remember depending on individual financial posture that figure could be less or more." FNBC also stated that they have standards they follow in regard to income debt ratios.
When asked about whether the First Time Buyer's Tax Credit provided in the Stimulus package had made any kind of impact on the number of housing loans, both Evins and representatives from FNBC said that it is too early to see the influx of customers opting to buy as a result of the tax credit. Both said their respective banks have had some customers inquiring about the credit. Evins said Liberty Bank has processed more home loans in 2009 than in 2008, he said this can be attributed to consumers taking advantage of the record low interest rates.
The maximum $8,000 tax credit for 2009 differs from the 2008 tax credit, in that it is not a loan and does not need to be repaid. The amount of the credit is equal to 10 percent of the purchase price of the home, but can not exceed $8,000.
In order to qualify for the tax credit, taxpayers must be a first time home buyer. A first time home buyer is defined as someone who hasn't owned a home in the last three years.
The potential home buyer must be purchasing a primary residence, whether it be an existing or new construction home. The tax credit does not allow vacation or rental homes to qualify. The home can not be purchased from a close relative and the home buyer must reside in the home for at least three years following purchase.
Home buyers choosing to utilize this tax credit must purchase their home between Jan. 1 and Dec. 31, 2009. There are, however, income stipulations. To review these visit the Internal Revenue Service Web site.
The tax credit is a great option for potential home buyers but there are also other options for those who either do not qualify for the tax credit or for whatever reason have a less than perfect credit score.
FNBC said, "Minimum required credit scores depend on the product and the type of loans being applied for." Evins outlined many potential financing options for prospective home buyers. He said, "The average credit score for a potential buyer of home is 680 for regular or conventional loan, and 620 for VA or FHA. The rural development loans can have a lower credit score but depends heavily on credit history."
He explained that the interest rates vary on primary and secondary market loans and start as low as 4.5 percent and go up. Evins explained that it is impossible to quote any type of interest rate without knowing a variety of factors unique to each individual. He suggested persons with an interest in purchasing a home visit with their loan officer to explore the financing possibilities for home ownership.
When asked whether the purchase of a new construction or of an existing home was more favorable in regard to financing options, Both Liberty Bank and FNBC agree that it is a matter of individual preference. Evins said that the economy needs both type of buyers. The new construction helps local contractors and businesses from which they purchase their building materials. The purchase of existing homes helps the real estate industry in the area.
According to the latest statistics collected from the Arkansas Realtors Association, the sale of new or existing homes sold through a Multiple Listing Service were down 22.47 percent in February of 2009 from figures in the same month of 2008. The association also reports prices are down 3.5 percent from 2008.
These figures, coupled with the record low interest rates create a perfect time for buyers to take advantage of what may be a once in a lifetime opportunity to purchase or refinance a home.