It is a common assumption among potential homebuyers that it is not a smart move to purchase bank forclosed home during an economic downturn and that most banks will not provide a loan to an individual who has less than perfect credit score. These misconceptions are just some that the banking industry wants to resolve.

The current economic downturn and foreclosure crisis have made many Americans cautious about how to spend their money. Furthest from their minds is purchasing a bank owned foreclosed home because they believed that banks would not approve a loan to an individual with less than perfect credit score.

These are just some misconceptions that representatives of the First National Banking Company (FNBC) and Liberty Bank of Arkansas Community Bank President Bob Evins want to resolve. Evins said that now is a good time to refinance, build or buy a house because the interest rates are historically low. FNBC reiterated Evins’s statement that now is the right time to refinance or purchase existing, new or repossessed properties.

According to Evins, it is difficult to determine the exact percentage an individual should borrow to prevent potential mortgage overload and foreclosure. He suggested that 43 percent is a safe enough estimate, adding that the percentage could fluctuate depending on the individual’s credit history.

Evins explained that usually, both the interest payment and monthly principal should not be over 31 percent of the borrower’s gross monthly income. But, he emphasized that the actual amount that could be borrowed by a potential homebuyer is greatly influenced by his credit history.

On its part, FNBC said that it has standards it follows with regard to a borrower’s income debt ratios.

Meanwhile, both FNBC representative and Evins agreed that it is still early to tell the impact of the tax credit for first time homebuyers provided under the Obama Administration’s stimulus package. Evins said that the number of home loans processed by his bank in 2009 is greater than in 2008. He attributed this increase to consumers taking advantage of low interest rates.

The 2009 tax credit, with a maximum of $8,000, is different from the tax credit in 2008 because it is not provided as a loan and there is no need for the homebuyer to repay it. The tax credit applies only to first time buyers of new, existing and bank foreclosed home.