Pocket Guide to Home Ownership

The North Carolina Housing Finance Agency

Pocket Guide to Home Ownership

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nchfa.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) should 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

Credit Score

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Your credit score is an indicator of your financial standing. How does your score stack up?

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.

Learn how to improve your credit score: www.nchfa.com/news/poor-credit-learn-how-improve-your-credit-score

Prequalified vs. Preapproved Although it may sound similar, getting prequalified for a loan is different from preapproval.

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.

Tips to Get 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.

Write A Letter to the Sellers

A letter that shows your personality may set your offer apart.

Put Your Best Offer Forward

A real estate agent can help. Check our listing of agents: www.nchfa.com/homeownership-partners/real-estate-agents

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 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.

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 s ecure 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?

Learn more: nchfa.com/home-buyers

Documents to Give Your Lender

Bank Statements

These show how much regularly goes in and out of your bank accounts.

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.

Tax Returns

You will need to show your annual income.

Pay Stubs

Your lender will want proof of what you are making.

ID

A mortgage application requires proof of identity.

Closing Costs

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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.

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

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 nchfa.com to get started.

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