A First Time Home Buyer’s Guide to Buying a House in NC

1. Assess Your Finances
Before you begin the home buying process, take a moment to assess your overall financial situation, including your savings, monthly income, outstanding debts and credit score. Understanding your finances will help you determine how much you can afford, which mortgage programs are within reach and if there are any areas in need of improvement — such as paying down debt or building up savings — to increase your chances of loan approval.Your credit history, in particular, is crucial here. Most mortgage lenders require a minimum credit score of 620 for conventional loans, though government-backed loans such as FHA or USDA may be more flexible. (More on those in a moment!) By assessing your finances at the start of your journey to buying a house in NC, you’ll avoid any surprises and be in a better position to make informed decisions as you move forward.

2. Set Your Budget
Once you have a clear picture of your finances, you’ll need to set a budget. Your budget will need to cover not only the purchase price of the home but also other expenses such as property taxes, homeowners insurance, closing costs and possibly private mortgage insurance (PMI). Many first-time buyers overlook these costs, which can significantly affect your monthly payments.A good rule of thumb is that your monthly housing costs — including mortgage, taxes, insurance and HOA fees, if applicable — should not exceed 20%–30% of your gross monthly income. You want to strike a balance behind buying the home of your dreams and ensuring your monthly payments remain manageable.

3. Assemble Your Team
Purchasing your first home is a major life milestone, which is why it’s crucial to assemble your own team of professionals that have the knowledge and experience to ensure you are granted the best outcome. Your team should consist of a realtor, a real estate attorney, a lender and a mortgage broker that can keep your needs top-of-mind every step of the home buying process.

4. Explore Loan Options
The numerous loan options available in North Carolina can be a bit overwhelming upon initial glance, which is why it is important to take your time and research which mortgage products and loan programs will fit your unique needs.Here’s a closer look at the available national loan options for first time home buyers:

• FHA
  A type of low down payment government loan insured by the Federal Housing Administration, a program office of the U.S. Department of Housing and Urban Development.Benefits include:
  • Low down payment
  • Flexible credit review
  • Fixed or adjustable rate
  • Limited closing costs; seller can help pay closing costs
  • No prepayment penalty
  • Available to individuals with low credit scores or no credit history
  • Special 203(k) program for home repairs
• USDA
  A type of government loan insured by the U.S. Department of Agriculture’s Rural Housing Program that enables low- and moderate-income households to purchase property in eligible rural areas.Benefits include:
  • No down payment required
  • Low mortgage rates
  • 100% financing
  • Reduced monthly mortgage insurance
  • Closing costs can come from a gift
  • Easy to qualify for
• VA
  A loan provided by a private lender and guaranteed by the U.S. Department of Veterans’ Affairs in order to make homeownership more affordable for veterans.Benefits include:
  • No down payment
  • No cash reserves
  • No application fee
  • No monthly mortgage insurance premiums
  • Funding fee may be financed
  • Seller can help pay closing costs
  • Low interest rates
• Conventional
  The most common type of loan, conventional mortgages are private-sector loans that follow the guidelines set by Fannie Mae and Freddie Mac. Borrowers can choose between 15-year, 20-year and 30-year mortgages.Benefits include:
  • Low down payment
  • No upfront mortgage insurance
  • Potential for lower mortgage insurance rates or no mortgage insurance at all
  • Stable interest rates
  • More appealing to sellers
  • Shorter underwriter approval process
• Jumbo (Non-conforming)
  Any mortgage that exceeds the conforming lending limit of Fannie Mae or Freddie Mac.Benefits include:
  • Borrow more than a conventional or government-backed loan
  • Potential for lower mortgage insurance rates or no mortgage insurance at all

In addition to these national programs, the North Carolina Housing Finance Agency (NCHFA) offers the NC Home Advantage Mortgage to move-up and first time home buyers in North Carolina. The NC Home Advantage Mortgage provides qualified individuals with stable, fixed-rate mortgages and down payment assistance up to 5% of the loan amount.

5. Look Into Local Programs & Grants
One advantage for first time home buyers in North Carolina is the opportunity to receive grants to supplement your mortgage or to put towards your down payment. The programs and grants you could be eligible for include:

• Good Neighbor Next Door: This program is only available to law enforcement officers, firefighters, emergency medical technicians and teachers. Funded by the U.S. Department of Housing and Urban Development (HUD), the Good Neighbor Next Door initiative provides qualified first time home buyers with a 50% discount off the list price of homes in the HUD inventory if they agree to live in the property for at least 36 months.
• Fannie Mae’s HomePath Program: HomePath makes properties owned by Fannie Mae — homes that have been foreclosed, forfeited or taken in a deed-in-lieu of foreclosure — available for purchase, often at below-market prices and under more flexible terms for owner-occupant buyers.
• Down Payment Assistance (DPA) Programs: The National Homebuyers Fund (NHF) offers DPA programs to home buyers that are able to afford monthly payments but do not qualify for the FDA’s 3.5% down payment requirement.
• NC 1st Home Advantage Down Payment: Funded by the NCHFA and intended specifically for veterans and first time home buyers in North Carolina, this program offers $8,000 down payment assistance.
• NC Home Advantage Tax Credit: Also funded by the NCHFA, this program grants a Mortgage Credit Certificate (MCC) for eligible first time home buyers in NC and military veterans to save up to $2,000 per year on their federal taxes.

6. Get Prequalified
Once you feel confident about a loan type that fits your needs, the next step is to get prequalified. Although prequalification is not mandatory, it can be helpful to get an estimate of the maximum amount you can borrow to subsequently set a price range. Another benefit of getting prequalified is that it makes a seller more likely to accept your offer over other buyers.To get prequalified, you will need to provide your mortgage broker with the following:

• Proof of income
  • Employee verification letter
  • Pay stubs from the past two months
  • IRS W-2 forms and tax returns from the past two years
• Your tri-merge credit report
• Proof of assets
  • Savings account
  • 401(k)
  • Stock dividends
  • Investment account statements
• Your debt-to-income ratio

Note that once you are prequalified, you will still need to go through the standard loan application process in order to actually secure funding. This means you aren’t obligated to work with the same lender that prequalifies you. In fact, you can even shop your prequalification around to other lenders to get a better deal. This is where it becomes vital to work with your mortgage broker because they can act as a liaison between you and lenders.

7. Start House Hunting
Enough preparation — it’s time to start the search for your dream first home. Given North Carolina’s natural beauty, some might say that it’s nearly impossible to go wrong when finding the perfect home. As a first time home buyer, here are a few questions you’ll want to consider:

• What is your budget/how much can you afford?
• Would you prefer to live in the city, the suburbs or somewhere more rural?
• What type of property are you looking for? (e.g. a single-family home, a duplex, condo, townhome, a co-op, etc.)
• How many bedrooms and bathrooms do you need? (Be realistic and don’t forget to think ahead!)
• What are your must-have features in a home, and which features would simply be nice to have?
• What is important to you? (e.g. a good school district, proximity to work, room to grow, etc.

8. Make an Offer
Once you find a home you love, it’s time to make an offer. You can rely on your real estate agent’s knowledge of the local housing market and your financial situation to put together a competitive offer that remains within your budget. Remember that list prices aren’t adamant – your realtor has room to negotiate price based on the home’s location, how long it’s been on the market and if it requires any renovations.Within a few days of submitting your offer, be sure to schedule an official home inspection. A home inspector will provide a report of any pre-existing issues with the home that you can use to leverage your offer throughout the negotiation process.

9. Obtain Homeowners Insurance
Before you can close on your new home, you’ll need to secure homeowners insurance. This is a requirement for most lenders and protects your home against damage or loss due to fire, theft or other disasters. Properties along North Caroline’s Coastal Plain may also require additional coverage, such as windstorm or flood insurance, due to the risk of hurricanes.Shop around for the best policy that fits your needs. Your mortgage broker can help you understand the terms of different policies and find a plan that meets lenders’ requirements while ensuring your home is adequately protected.

10. Apply for a Mortgage
You have 90 days to apply for a mortgage after your final offer has been submitted. At this point, your mortgage broker will step in and guide you throughout the application process. A good mortgage broker will use their connections and work with a wide variety of lenders to negotiate favorable mortgage terms for you.After you apply to the lender, an underwriter will review your application and assess your credit score, credit history, employment history, income stability, debt-to-income ratio and assets to determine your ability to repay your debt. Based on their assessment, the underwriter will either approve, deny or suspend your application.If approved, you can move on to obtaining a home appraisal. If suspended, it is likely that the underwriter needs additional information before they can proceed. There is no need to panic if your application is denied — the underwriter will provide a definitive reason as to why it was rejected so that you can work with your mortgage broker to make any necessary changes and apply again.

11. Schedule a Home Inspection
While the state of North Carolina does not legally require a home inspection, it’s in your best interest to schedule one. A licensed inspector will evaluate the home’s condition, including its structural integrity, plumbing, electrical systems, HVAC and more. If any significant issues arise during the inspection, you may be able to negotiate repairs with the seller or adjust the offer price.

12. Obtain a Home Appraisal
Before the underwriter issues their final mortgage application approval, borrowers are required to receive a home appraisal from a lender-approved appraiser. The appraiser’s role is to give the lender an idea of the home’s value to ensure that the homeowner does not over-borrow.The appraiser will review the following:

• Current market trends
• The general condition of the home
• Square footage
• The number of bedrooms and bathrooms
• Additional space (e.g. basement, attic, crawl space)
• Building materials
• Foundation type
• Home improvements, upgrades and added amenities
• Neighborhood characteristics
• Lot size
• Recent sales of similar properties

Once the underwriter receives the appraiser’s findings and approves, they will work with your mortgage lender to lock in your interest rate to prepare for closing.

13. Negotiate Closing Costs
Closing costs typically range from 2%–5% of the home’s purchase price and can include appraisal fees, title insurance and legal fees. Many first time buyers are unaware of the extent of these costs, so it’s crucial to budget for them in advance. You may have the opportunity to negotiate with the seller to cover part or all of the closing costs, especially if the home has been on the market for a while.

14. Close on Your Home
During closing, your broker and realtor will work with you to review and sign all loan documentation. At this point you will also be required to pay closing costs, including an appraisal fee, an origination fee, legal fees, title search and insurance, escrow fees and more. The amount you pay in closing costs will vary based on your loan type, loan amount, the type of property you purchase and its location and so on.

As a first time home buyer, this entire process is entirely new to you. While a few bumps in the road are inevitable, there’s a lot you can do to minimize mistakes. Here are some important things to avoid when buying your first home:

1. Buying before you’re ready. Homeownership is a long-term financial commitment. Jumping in too early — before you’ve built savings, improved your credit or reduced debt — can limit your loan options and increase financial stress down the line.
2. Being unrealistic about your budget. It’s easy to fall in love with a home that stretches your finances, but buying beyond your means can lead to unmanageable monthly payments.
3. Underestimating the cost of homeownership. Mortgage payments are only part of the picture. Property taxes, homeowners insurance, utilities and maintenance costs all add up, and failing to plan for them can put a strain on your finances.
4. Not saving enough for emergencies. Even with a new home, unexpected expenses happen — an HVAC repair, a leaky roof or an appliance replacement. Building an emergency fund before you buy prevents these costs from becoming financial setbacks.
5. Letting your debt run rampant. Lenders look closely at your debt-to-income ratio when evaluating loan eligibility. If you accumulate new debt, such as car loans or credit card balances before closing, it could jeopardize your approval.
6. Turning a blind eye to your credit score. Your credit score influences not only your loan approval but also your interest rate. If you monitor and improve your score before applying for a mortgage, it could lead to more favorable terms.
7. Not exploring different mortgage options. There’s no one-size-fits-all mortgage. From government-backed programs to conventional options, exploring multiple loan types with the assistance of a qualified broker can uncover opportunities for better rates or lower down payments.
8. Shopping with just one lender. Different lenders offer different rates, fees and terms. Comparing multiple offers — again, with the help of a broker — can save you thousands over the life of your loan.
9. Not working with a mortgage broker. A seasoned mortgage broker acts as your advocate while you navigate the complex lending landscape and will negotiate on your behalf to secure the most favorable mortgage terms possible.
10.  Not getting prequalified. Prequalification helps you understand how much you can afford and makes your offer more competitive in a fast-moving market. Skipping this step can lead to disappointment or lost opportunities.
11.  Not making a wish list. Defining your list of must-haves versus nice-to-haves keeps your home search focused. Without a clear list, it’s easy to waste time or make emotional decisions that don’t fit your long-term needs.
12.  Neglecting to do your research. Every neighborhood and property type in North Carolina is different. Failing to research local market conditions, school districts or future development plans could lead to buyer’s remorse later on.
13.  Waiting for the “perfect” house. While there are many wonderful homes out there, there’s no such thing as a perfect house. By focusing on homes that meet your key criteria, you’ll be able to act decisively when the right opportunity arises.
14.  Settling for the wrong house. Conversely, don’t settle for a home that doesn’t feel right just to speed up the process. A house is a long-term investment; take the time to ensure it suits your lifestyle and goals.
15.  Prioritizing the house over the neighborhood. Your home’s location has just as much impact on your quality of life and future resale value as the property itself, so consider commute times, school districts and local amenities before you make a decision.
16.  Ignoring local property tax variations. Property taxes can vary widely between counties and municipalities. It’s imperative that you research these differences in advance to avoid higher monthly costs than expected.
17.  Not budgeting for the due diligence fee. Homes in North Carolina are subject to a due diligence period, which takes place between the seller accepting the offer and closing. During the due diligence period — which can range from two weeks to a month — the buyer can schedule an appraisal and home inspection and run a title search.The buyer is also required to pay a due diligence fee, which is a non-refundable payment made to the seller as compensation for temporarily taking the property off the market during this period. This fee can range anywhere from 0.5%–5% of the purchase price. It’s important to plan ahead for this and include it in your budget so you aren’t caught off guard.
18.  Skipping the home inspection. Forgoing a professional home inspection might seem like a way to save money, but it can lead to some expensive surprises after closing. Inspections can reveal structural, electrical or moisture issues that aren’t visible during a showing — problems that could cost thousands to fix later.
19.  Skipping termite inspections. North Carolina’s warm, humid climate makes it a breeding ground for termites. Termite damage can be incredibly costly and difficult to detect without a professional inspection, so conduct regular termite checks — both before and after closing — to protect your investment.
20.  Overlooking flood zone insurance. Certain parts of North Carolina, especially the Coastal Plain and low-lying areas, may require flood insurance in addition to homeowners insurance. This is often a requirement for mortgage approval, so confirm whether your property is in a flood zone before closing.
21.  Putting too much or too little money down. A large down payment can lower your monthly mortgage costs, but it might deplete your savings and leave you without an emergency cushion. On the other hand, putting too little down could increase your monthly payments and require mortgage insurance. Fortunately, your mortgage broker can help you strike the right balance based on your financial goals.

Q: How much money do I need to put down on a house in North Carolina?
A: If you qualify for a VA or USDA loan, you’re eligible to put no money down; if you qualify for a conventional loan, you can put as little as 3% down.

Q: Is being prequalified for a loan the same as being approved for a mortgage?
A: No, they are not the same. You’ll still have to secure funding by going through the standard loan application process. A mortgage broker can expedite it by serving as a liaison between you and lenders.

Q: How much is the average PMI for NC?
A: PMI will fluctuate based on your credit score and down payment; use a fact of 0.7% for a good ballpark. For example, on a $100,000 loan, multiply $100,000 by 0.7% for a $700 annual cost, or $58.33 a month.

Q: How can I get approved as a first time home buyer in NC?
A: The first step is to talk with an experienced loan officer who can answer all your questions and walk you through the prequalification process.

Ready to embark on your journey to homeownership in North Carolina? Our team of experts awaits you! Contact Blue Water Mortgage today and speak with a member of our first time home buyer team to learn how we can help you land the home of your dreams.