Your Guide to
Home Ownership
The NC Housing Finance Agency is here to help you navigate your journey to home ownership.
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.
This Guide to Home Ownership will walk you step-by-step through the home buying process so it’s as easy, efficient and exciting as possible!
How Much Can I Afford? • Credit Score 101 • Prequalified vs. Preapproved • Real Estate Partners • Types of Mortgages • Getting Your Offer Accepted • Documents for Your Lender • Closing Costs 101 • Preparing for Closing Day • Homeowner Checklist • Home Buying Mistakes • Mortgage Terms • Ready To Buy A Home?
Step 1
How Much Can I Really Afford?
You’ve started saving up for your down payment and are ready to start the home buying process! The first step is to determine how much you can afford.
Your total housing payment (including taxes and insurance) is recommended to be no more than 32% of your gross (pre-taxes) monthly income.
It is important to keep in mind your total monthly debts when considering how much mortgage you can afford. 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.
See how much you can afford using our Home Ownership Calculators.
Did you KNow?
Credit Score 101
Your credit score is an indicator of your financial standing and is a pillar of determining how much you can afford. It estimates how likely you are to pay your bills on time based on your credit history, payment history, debt, and credit inquiries.
Here’s how your credit score may impact your ability to get a loan:
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.
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.
Step 2
Prequalified vs. Preapproved
Before you start looking at homes, your lender can tell you how much the bank will be willing to loan you. Although it may sound similar, getting prequalified for a loan is different from getting preapproved.
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.
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.
Step 3
Find Your Home
Start shopping for your dream home!
Once you know how much home you can afford and what the bank will support you with, it’s time for the fun part – finding your home!
The NC Housing Finance Agency has preferred real estate agents that you can work with. Real estate agents will help you find homes, tour them, and will guide you along the home buying process. They are a great resource to have and know what to look for in a home.
We have a list of real estate partners across North Carolina who would be happy to work with you on your home buying journey!
Step 4
Choosing The Right Mortgage For You
You’ve found the home of your dreams—now you just need to pay for it. In most cases, there are two distinct mortgage loan types to choose from when you make a home purchase: adjustable-rate mortgages and fixed-rate mortgages.
Adjustable-Rate Mortgages
Your interest rate and mortgage payments can change over time.
Fixed-Rate Mortgages
Your interest rate is fixed at the time that you secure your home loan.
Things to Consider
1. How much can you afford per month? Even if rates rise?
2. How long do you intend to live in the home you are purchasing?
3. Do you anticipate interest rate trends to continue?
Step 5
Tips To Get Your Offer Accepted
You’re ready to put an offer in on your home, fingers crossed the sellers pick you!
Here are our top tips for getting your offer accepted.
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.
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 here.
Step 6
Getting Your Offer Accepted
Congratulations, your offer was approved! It’s now time to get with your lender, provide them the right documentation, and get your mortgage approved.
Bank Statements
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.
Proof of Reserves
This proves that you will still have money left over after down payment and closing costs.
W-2 Forms
You will need to prove your employment to the lender.
Pay Stubs
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.
Step 7
Closing Costs 101
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.
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
How Much Should I Expect to Pay in Closing Costs?
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.
Are Closing Costs Negotiable?
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.
Step 8
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.
DO
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
Step 9
Congratulations, you’re a homeowner!
You did it! You found your dream home, you navigated the mortgage process and made it through closing day.
Now to the fun part–moving, decorating and starting your life in your new home.
- RDo the Final Walk Through
- RClean, Clean, Clean!
- RDo Repairs and Paint Beforehand
- RTransfer and Set Up Utilities
- RStart Packing!
- RUpdate Your Address
Did you KNow?
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.
1. Not Checking Your Credit Score
You could be in for a rude awakening when you’re ready to buy a home.
2. 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.
3. Not Shopping Around for a Mortgage
Doing your due diligence could help you get a lower interest rate, better terms and more.
4. 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.
5. 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.
6. 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!
Did you KNow?
Stumped by Mortgage Terms?
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 can come in different forms. Earnest money is given to the seller before you buy and held in a trust or escrow account, typically by a closing attorney. Due diligence is a negotiated fee paid to the seller in exchange for them to hold the house for you for a certain time period. When you purchase a home, a lender will establish an escrow account that includes prorated funds for your property taxes and homeowners insurance and is collected monthly as part of your mortgage payment.
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.
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.
NC Housing Finance Agency
3508 Bush Street, Raleigh, NC 27609
Thank you to all of our partners for helping us create safe, affordable housing opportunities to enhance the quality of life of North Carolinians.
J. Adam Abram, Board Chair
Scott Farmer, Executive Director
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