The North Carolina Housing Finance Agency
Pocket Guide to Home Ownership
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HousingBuildsNC.com
Buying Your First Home There’s a lot to know when it comes to buying your first home, but the NC Housing Finance Agency is here for you every step of the way. Learn how to make the home buying process as easy, efficient and exciting as possible.
Top 6 Home Buying Mistakes Buying a home can be complicated and confusing —don’t fall into common pitfalls for home buyers! Here are our top 6 home buying mistakes so you can avoid making them and ensure your financial security for the long term.
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Not Checking Your Credit Score You could be in for a rude awakening when you’re ready to buy a home.
Forgoing Preapproval Preapproval not only lets you know how much a lender is willing to give you for a home, but it also gives you leverage when you make an offer.
Not Shopping Around for a Mortgage Doing your due diligence could help you get a lower interest rate, better terms and more.
Waiving a Home Inspection Have a professional inspector look at the home before you sign on the dotted line, or you could be in for huge expenses after you move in.
Not Having an Agent on Your Team Having a real estate agent on your side throughout the home buying process allows you to have an easier and more successful house hunt.
Not Having Your Down Payment in Order The NC Home Advantage Mortgage™ offers down payment assistance so you can buy your home with little or no money out of pocket, or give your existing down payment a boost!
How Much Can I Really Afford? Your total housing payment (including taxes and insurance) is recommended to be no more than 32% of your gross (pre-taxes) monthly income.
+ The sum of your total housing payment (including taxes and insurance) and other monthly debts should be no more than 45% of your gross (pre-taxes) monthly income. Use our home ownership calculator to determine how much you can afford: nchfa.com/home-buyers/buy-home/home-ownership-calculators
300-579
You will be unlikely to secure a loan for a home or other large purchase, as you are seen as a very high-risk borrower by lenders.
580-639
You may be able to secure a home loan, but you will be saddled with a high interest rate and high fees.
640-699
You would qualify for a home purchase. However, you may not receive the best interest rates available.
Credit Score
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Your credit score is an indicator of your financial standing. How does your score stack up?
700-749 You will be able to secure a good mortgage loan with favorable interest rates.
750-850 You can expect to enjoy the best interest
rates on your loans, as you are seen as a very low-risk borrower by lenders.
Learn how to improve your credit score: www.nchfa.com/news/home-matters-blog/celebrate-nationalcredit-education-month-five-tips-improve-your-credit-score
Prequalification is a much less stringent process that simply gives you an idea of what your price range might be, while preapproval is when a lender checks your credit and reviews your documents to determine if you could qualify for a specific loan amount. When you get preapproved, you will get a preapproval letter that can be given to a seller with your offer to prove that you have financing and you are a serious buyer.
Prequalified vs. Preapproved Although it may sound similar, getting prequalified for a loan is different from preapproval.
However, don’t let the lender tell you what you can afford to own. Instead, use your preapproved amount as a guideline, think about your budget and decide for yourself what you are comfortable spending. This will help you to remain financially secure in the future.
Get Preapproved Before You Buy This shows you are a serious buyer with financing in place.
Ensure Your Offer Is Realistic Don’t make a lowball offer and risk offending the seller.
Tips to Get Your Offer Accepted
Be Flexible with Your Closing Date You may be buying your first home, but your seller might be selling and buying. Offering flexibility with closing might give you a leg up.
Put Your Best Offer Forward A real estate agent can help. Check our listing of agents: https://www.nchfa.com/home-buyers/find-real-estate-agent
APR: The annual percentage rate (APR) is the yearly cost of credit, expressed as a percentage. The APR includes prepaid interest rate, discount points and other charges that you are required to pay for the loan. Escrow: Escrows come in two forms. One is the earnest money given to a seller before you buy and is held by the closing attorney. The second escrow is established by the lender when you purchase the home. This escrow account includes the funds for your property taxes and homeowners insurance and is collected monthly as part of your mortgage payment.
Stumped by Mortgage Terms?
Loan Estimate + Closing Disclosure: The Loan Estimate will give you the details about the loan so you can compare it with other offers from other lenders to select the mortgage that is right for you. The Closing Disclosure form will give you the final details about your mortgage including terms, monthly payments and your closing costs. LTV: The loan-to-value is the amount you borrow divided by your appraised home value. The higher your LTV, the lower your equity. Private Mortgage Insurance (PMI): This insurance is paid on behalf of a private company or a federal government agency (such as the FHA) that protects the lender against financial loss if you don’t pay your mortgage. PITI (Principal, Interest, Taxes and Insurance): This is your monthly payment and can also include mortgage insurance and homeowner association dues.
Adjustable Rate vs. Fixed Rate You’ve found the home of your dreams—now you just need to pay for it. In most cases, there are two distinct loan types to choose from when you make a home purchase: adjustable-rate mortgages and fixed-rate mortgages.
ADJUSTABLE -RATE MORTGAGES
FIXED-RATE MORTGAGES
Your interest rate and mortgage payments can change over time.
Your interest rate is fixed at the time that you secure your home loan.
THINGS TO CONSIDER How much can you afford per month? Even if rates rise? How long do you intend to live in the home you are purchasing? Do you anticipate interest rate trends to continue?
Documents to Give Your Lender
Bank Statements
Proof of Reserves
These are used to verify your income and cash reserves to ensure you can repay your mortgage loan and cover your down payment and closing costs.
This proves that you will still have money left over after down payment and closing costs.
W-2 Forms
Pay Stubs
You will need to prove your employment to the lender.
Your lender will want proof of what you are making.
Tax Returns You will need to show your annual income.
ID A mortgage application requires proof of identity.
What Expenses Are Included in Closing Costs? • Attorney fees • Inspection charges • Appraisal fees
• Loan origination fees • Title insurance and title search fees • Recording and underwriting fees
Closing Costs
How Much Should I Expect to Pay in Closing Costs?
Closing costs are fees that are charged at the end of a real estate sale (excluding pre-paid expenses like escrow accounts and up-front insurance premiums), and are generally paid by the buyer of the home. However, in some cases, you may be able to negotiate for the seller to pay all or a portion of your closing costs.
Are Closing Costs Negotiable?
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A home buyer can expect to pay 2–5% of the total purchase price of their home in closing fees, so it is a good idea to set aside at least that much in your budget when you decide on a home purchase price.
Surprisingly, certain items can be negotiated when you close on your home. Check your closing disclosure and loan estimate line by line. Have your lender explain the costs to you in detail, so you know exactly what you are paying for. In some cases, you may be able to negotiate some items such as origination and underwriting fees.
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How to Prepare for Closing Day Your offer has been accepted, your loan is almost done processing and you are starting the sprint to closing day. Although this final step in the home buying process can be exciting, there are many things that you should do to prepare for closing so it can go smoothly—and so you can get moved into your new home as quickly and easily as possible.
REVIEW YOUR LOAN DOCUMENTS IN ADVANCE HIRE MOVERS TRANSFER YOUR UTILITIES GET THE CASH TO CLOSE PLAN TO TAKE TIME OFF WORK
DO NOT MAKE LARGE PURCHASES BE LATE ON YOUR BILLS CHANGE JOBS BE CARELESS WITH CREDIT CARDS
READY TO BUY A HOME? WE CAN HELP. Now that you know the ins and outs of home buying and you’re ready to buy your house and secure your mortgage, don’t forget about the NC Home Advantage Mortgage™ with down payment assistance and lenders statewide.
Visit NCHomeAdvantage.com to get started. A self-supporting public agency.