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Homebuyer’s Guide to Applying for an FHA Loan in NC [Plus Pros and Cons]

Home to prosperous urban cities, beautiful landscapes and some of the top ranked universities in the U.S., it’s no wonder that North Carolina is one of the best states to live in. Whether you are a first time buyer or are looking for a change, the Tar Heel State’s low cost of living and southern charm make it a great location to settle down.

If you’re a home buyer aspiring to live in North Carolina, an FHA loan could be an excellent option to turn your dream into reality. Read on for a comprehensive beginner’s guide to applying for an FHA loan in North Carolina.

What Is an FHA Loan?

The FHA loan program was developed during the Great Depression by the U.S. Federal Housing Administration, a program office of the U.S. Department of Housing and Urban Development (HUD). In an effort to stabilize the housing industry, the program was designed to help veterans, first time home buyers and lower income Americans borrow money to purchase property.

One particular offering by the FHA program is the 203(k) loan. This loan is based on the property’s projected value after repair/renovation rather than the current value of the property. By including the costs of repairs to the home, this loan option becomes even more flexible and advantageous for home buyers in NC.

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Why You Should Apply for an FHA Loan

There are several benefits of applying for an FHA Loan in North Carolina, including:

  • FHA recipients are eligible for down payment as low as 3.5% of the purchase price
  • FHA loans are more forgiving of higher debt-to-income (DTI) ratios and low or nontraditional credit scores
  • FHA loans have less strict rules concerning monetary gifts than conventional loans
  • An FHA-approved buyer has the option to assume a seller’s FHA mortgage to get lower interest rates
  • FHA recipients are eligible for additional financial hardship relief

Am I Eligible for an FHA Loan?

FHA mortgage loans may only be provided by FHA-approved lenders and have different eligibility requirements than a conventional loan that make them more accessible. In order to be eligible for the FHA loan program in NC, you must have the following:

  • A valid Social Security number
  • Lawful residency in the United States
  • A steady history of employment or of having worked for the same employer for at least two years
  • The ability to sustain monthly payments
  • A clean credit history over the previous two years
  • Approval of the property from an FHA-approved appraiser

If you have any questions or would like to start the application process, give us a call.

Steps to Apply for an FHA Loan

So, what does the FHA loan application process entail? Follow this step-by-step breakdown to gain a better understanding of how the journey typically looks.

Step 1: Find a mortgage broker that offers HUD/FHA loans.

A mortgage broker will review your finances to determine which lender is the best suited for your unique situation. Your broker will act as a liaison between you and the lender and represent your interests throughout the loan application process to ensure that you receive favorable terms. Knowing that you have a trustworthy mortgage broker in your corner throughout the process can ease your mind and take some of the weight off your shoulders.

Step 2: Get pre-qualified.

Prequalification refers to the process in which the lender evaluates your financial situation and determines if you qualify for an FHA loan before you find a home.

During this step the lender will review the following:

  • Your tri-merge credit report, a comprehensive report that combines your individual credit reports from Experian, Equifax and TransUnion.
  • Your debt-to-income (DTI) ratio, which is the percentage of your monthly gross income that goes toward paying debts.
  • Your assets, which can include your savings account, 401(k), stock dividends, etc.
  • IRS W-2 forms and tax returns from the past two years.
  • Pay stubs from the past two months.
  • An employee verification letter.

Although pre-qualification isn’t a mandatory part of the FHA loan application process, it is highly recommended by industry experts. Getting prequalified proves to both realtors and sellers that you are ready and willing to buy and are in good financial standing. To better prepare, download out mortgage prequalification checklist.

Step 3: Find a home you love.

Finally, the fun begins – it’s time to find the home of your dreams! There are many things to consider during the house hunting process. Our advice is to start by deciphering your “wants” from your “needs” in a potential home. You also want to be sure to inquire about the history of the house and research the surrounding community.

Step 4: Fill out the application form.

Once you have been pre-qualified for an FHA loan and found the home for you, it’s time to receive official lender approval.

You must first fill out a Uniform Residential Loan Application (Fannie Mae form 1003), which asks for information about the type of loan you’re applying for and the property address. You will additionally need to fill out an addendum to this form (HUD form 92900-A). These forms cover substantial information ranging from your employment history to recurring debts.

Note that some lenders might require you to pay a mortgage application fee at this stage, whereas others might roll the fee into closings costs. A good mortgage broker will ensure you are prepared by asking your lender what their policy is.

Step 5: Get a property appraisal.

In order for your FHA loan application to be approved, your mortgage broker will order a property appraisal to be conducted by a HUD-approved appraiser.

The appraiser will evaluate the market value of the property by looking at comparable properties that were recently sold in the area. The appraiser will further conduct an in-depth property inspection to ensure that the home meets HUD’s Minimum Property Standards, such as that the home is safe, livable and up to code.

Step 6: Receive underwriter approval.

The concluding requirement to receive approval for an FHA loan is to get an underwriter review on behalf of the lender. The underwriter will determine how likely you are to repay your debt, based on factors such as credit score, credit history, employment history, income stability and DTI.

Step 7: Complete closing.

Closing time! During the closing process you will review and sign all loan documentation and pay any closing costs. Closing costs are determined by your loan amount, mortgage option, type of property and the city, county or state of residence. These costs can include the following:

  • Appraisal Fee
  • Origination Fee
  • Documentation Preparation Fee
  • Credit Report Fee
  • Legal Fees
  • Title Search
  • Title Insurance
  • Homeowners Insurance
  • Escrow Fees

One benefit for buyers who apply for an FHA loan is that they can ask the seller to pay some of the fees associated with closing, as well as apply monetary gifts from friends and family members toward closing.

At Blue Water, we recognize that the application process can seem overwhelming at first. That’s why we are here to help – talk to one of our mortgage experts today.

Pros and Cons of an FHA Loan in NC 

The Pros

  • Lower down payments
  • Can borrow money for repairs
  • FHA loans are assumable
  • No prepayment penalties or similar fees
  • Streamlined refinancing

The Cons

  • Down payments are contingent on credit score/history
  • Must meet HUD Minimum Property Standards
  • Stricter loan limits
  • You’ll pay more for mortgage insurance

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Buying a home is one of the greatest financial investments you will ever make. That’s why it is vital to research your options with a mortgage broker to find the program that best fits your unique needs.

With over 150 years of collective mortgage experience, the brokers at Blue Water Mortgage have the expertise to secure the best terms and lowest rates possible. Our team is here to guide you throughout the process and answer any questions that arise. Contact us today to learn more.

Blue Water Mortgage is licensed in New Hampshire, Maine, Massachusetts, Connecticut, Vermont, Rhode Island, Florida, North Carolina, Colorado, Texas, Georgia, and South Carolina.

Roger Odoardi

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.