Everything You Need to Know About Buying a House in North Carolina

Buying a home in North Carolina takes some planning but it can be a great investment.
Written by Lynell Spencer
Reviewed by Melanie Reiff
North Carolina offers some of the lowest home prices and cost of living in the country, but if you buy a home there you will need to insure against hurricanes. 
There is so much to love about
North Carolina
. The state offers its residents mild winters, beautiful scenery, and a low cost of living. Whether you are planning a move or thinking about purchasing a rental property, North Carolina can be an excellent place to look.
In NC, you will get more house for your money since NC boasts a lower average cost for real estate. The median home price there is $242,300, but that has been on the rise in the past few years. It is important to get a good understanding of the local market and homebuying process before you buy.
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Figure out your finances

Understanding your financial situation is not the most fun part of the home buying process, but it is the most important. Knowing your income and credit situation, figuring in current obligations, and saving for a down payment are all things you can work on well ahead of picking out a home.

Check your credit score

To get a mortgage loan in North Carolina, you will need a minimum credit score of 620, but the average homebuyer score in the state is 703. Getting your score as high as possible will result in bigger loans with less interest and will help you be competitive in a seller’s market. 
In North Carolina, if your credit score is less than 740, you may be asked to purchase private mortgage insurance (PMI) as a condition of your loan.
If you have credit that is lower than 620, you may still have options. If you meet the requirements, a Federal Housing Administration (FHA) backed loan can offer lower down payments and allows credit scores in the 500s. You will likely pay more for this type of loan, but it may be your best bet with low credit. 
Fortunately, credit is something you can work on right away to prepare for the next steps in home buying. 

Options for building low credit 

  • Get free copies of your
    credit report
    from the three major credit reporting agencies, and review them carefully for inaccurate or fraudulent information. Each agency will have a process to dispute incorrect accounts and transactions. 
  • Pay down open accounts to improve your credit utilization score. This score looks at how much of your available credit you are using. Credit cards, car loans, and other personal loans balances will impact this number, which accounts for about 30% of your overall credit score. 
  • Don’t rush to close accounts. Open accounts with a low-to-no balance that are in good standing help with your credit utilization score and with your credit age. It is a plus for you to have longstanding accounts.
  • Don’t rush to open new accounts. Too many recently opened accounts or inquiries can be a red flag. Put off financing any major purchases until after you’ve purchased your home. 
  • Resolve and remove negative accounts. Take a look at any closed accounts, or accounts with outstanding past-due balances. Contact debtors to negotiate payment of these accounts and ask if the lender will remove the negative information once the account is paid in full.

Calculate your debt-to-income (DTI) ratio

Once you are feeling good about your credit score, figure out your debt-to-income ratio (DTI). To do that, add up your monthly payments and divide that number by your gross monthly income. Lenders use this number to determine your ability to pay a mortgage. 
A DTI of 43% or lower is required to get a conventional mortgage in North Carolina. Ideally, a qualified buyer will have a DTI of 36%-40%. Your DTI will improve as you pay off student loans, auto loans, other personal loans, and credit cards.

Determine your down payment 

A 20% downpayment is required for a home loan in North Carolina. For a $250,000 home (average for NC), your down payment will be $50,000. 
If you’re not able to make a 20% down payment, you may qualify for an alternative loan. A Federal Housing Administration (FHA) loan or Veterans Administration (VA) home loan may be a good option. There may also be North Carolina state agencies and programs to consider. Here are some places to start:

Prepare for closing costs and other fees

One final element of your financial preparation is to plan for closing costs and other signing fees. In general, these fees include:
  • Home appraisal fee
  • Credit report fee
  • Home inspection fee
  • Mortgage origination fee
  • Earnest money (i.e., a good-faith deposit that will go towards your down payment)
  • Mortgage insurance
  • Property taxes
  • Homeowners insurance
Fortunately, North Carolina property taxes are lower than the national average of 1.07%. Typically, you will pay .77% of your property value—that works out to about $1,925 for a $250,000 home. 
North Carolina does offer some property tax reduction programs for seniors and permanently disabled homeowners. You can also keep property taxes even lower by researching various counties and choosing a location with a lower rate. 
Key Takeaway If you are flexible on the location, you can save money on property tax by looking for counties with lower tax rates.

Look for homeowners insurance

You will have to make sure that you have a
homeowners insurance
policy in place before you can finalize your home loan. It is important to shop around and make sure you are getting the right coverage for the best price. 
In North Carolina, you likely will want to look for the following types of coverage in addition to your basic coverage:
  • Extra coverage for wind damage. Homeowners insurance usually covers wind damage, but in North Carolina, you may pay more for wind or hail damage. Especially if you live near the coast or the outer banks, your insurer may not provide windstorm coverage automatically.
  • Flood insurance. North Carolina is prone to hurricanes and flooding. It is strongly recommended that you purchase separate flood insurance to make sure that you are covered if you are the victim of a natural disaster.
Remember that the cost of your policy will depend on where you live. North Carolina homeowners insurance is generally more expensive along the coast, and premiums lower as you move inland.
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Key Takeaway: Make sure you find the right insurance to cover your new home. North Carolina homes may need additional types of coverage for wind and flooding.  

Get preapproved for a mortgage

The next step in the homebuying process is to get preapproved for a mortgage. Getting preapproved requires you to fill out a loan application, provide your credit report, and submit income and asset verification. 
Share this information with your lender, and once approved, they will give you a preapproval letter that lets the seller know that you have the backing you need to buy the home. 

How to find the right mortgage in North Carolina

Choosing the right mortgage starts with finding the right lender. Shop around and make sure you are getting the best possible interest rate on your loan. Your interest rate is determined by your credit, the size of your downpayment, your location, and the terms of your mortgage. 
The two most common mortgage terms are 30 years and 15 years. A shorter term means that your payments will be larger, but you will pay your home off sooner, saving you a lot of money on interest. 

Look for a house

Once you are preapproved for a mortgage, the clock is ticking for you to find your new house. Your preapproval letter is an offer from your lender that lasts for 90 days—so it is time to narrow down your options. 

Pick your city or neighborhood 

Start by deciding on the city or neighborhood that most suits your needs. Consider cost, employment and crime rates, educational opportunities, and things to do for fun in the area. 

Buyer’s market vs. seller’s market

As a homebuyer, your experience will be very different depending on the state of the real estate market when you buy. If NC is experiencing a buyer’s market, there are more properties for sale than there is demand for them. In a buyer’s market, you have a little more leverage to negotiate the terms of your loan and associated fees. 
In a seller’s market, you will want to be prepared to put an offer in quickly. A seller’s market happens when the demand for properties is higher than the supply
If you find that you have to buy during a seller’s market, you will likely be competing with multiple buyers for the same home—plan to offer a bigger downpayment if possible, be flexible where possible, and move quickly.

Find a real estate agent

Finding an experienced local agent can make all the difference when you are ready to choose a house, especially if you are moving to the area from somewhere else. There are always nuances based on location, and an experienced agent will help you navigate the landscape and find the house you want. 
Your real estate agent will be representing your interests with the seller and their agent. Before choosing someone, check customer ratings, review their portfolio, and ask some questions to make sure you are comfortable with your choice. The better your agent knows and understands you, the easier it will be to find your perfect home. 

Make an offer

When you’ve found your perfect location, your real estate agent will help you compile a written offer. Your offer will include the amount you are offering to pay and any contingencies you may want to include—for example, if you would like the homeowner to replace an old water heater before the purchase—and your preapproval letter. 

How to save on homeowners insurance

Your best bet for home insurance savings is to comparison shop, and then to bundle insurance policies with one provider. It makes sense to start by getting a quote from your current auto insurance carrier—but don’t stop there. There are plenty of tips, tricks, and savings out there, you just have to know how to find them.
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About $60,000 should cover the downpayment and closing costs in NC, so you will need at least that much to get started. The median home price in North Carolina is $242,300, and you will pay lower property taxes than the national average.
You will need a minimum credit score of 620 to qualify for a conventional fixed-term loan. Some lenders will offer loans for buyers with lower credit scores, but they will come with much higher interest rates.
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