Updated: Jun 8
Many prospective homebuyers in North Carolina have to wait to purchase a home. For some, it is because of student loan debt, while others have to wait due to interest rates or because they haven't saved up a big enough down payment.
But the day for homeownership will come, especially as the American average rent for a one-bedroom apartment has exceeded $1,200. You may be able to purchase a home sooner thanks in part to North Carolina's state sponsored first-time homebuyer assistance programs.
Buying a home in North Carolina
According to Zillow, the average home in North Carolina is valued at nearly $325,000. And while the rise in home prices began to moderate in the summer of 2022, largely due to much higher interest rates, prices were still up 23.8% in the twelve month period ending with August 2022. In fact, check out the rise in home values over the past decade.
As you're preparing to buy your first home in The Tarheel State, you'll want to keep in mind that your new home will not be the only expense you'll encounter. You'll also likely need furniture to furnish your house, as well as some extra money to pay for your closing costs.
Related: Preparing for closing costs in North Carolina
First-time homebuyer programs in NC
The North Carolina Housing Finance Agency (NCHFA) offers three programs to help prospective homebuyers to purchase their first homes. These programs are:
NC Home Advantage Tax Credit
NCHFA NC Home Advantage Mortgage
NCHFA NC 1st Home Advantage Down Payment
1. NC Home Advantage Tax Credit
North Carolina's Home Advantage Tax Credit program is less of a formal homebuyer assistance program and more of a tax credit that you can use in perpetuity. In real estate circles, the program is known as a mortgage credit certificate program (MCC). The credit can be combined with an NCHFA Home Advantage Mortgage (more on this in a minute).
Here's how it works.
First-time buyers and military veterans can save a maximum of $2,000 per year by claiming a federal tax credit equal to 30% of the interest you pay on an existing home (or 50% on a new home).
To utilize this mortgage credit certificate program, you'll need to apply for it at the same time that you complete your mortgage application. This application should be submitted to the NC Housing Finance Agency.
One question that we get a lot is how this program is different from deducting your mortgage interest at tax time. Let's say that you deduct 30% of your mortgage interest through this tax credit. You can still deduct the other 70% of your mortgage interest normally on your tax return, but with an MCC program, you don't need to wait until tax time.
Once you figure out the dollar value of your credit, you can adjust your tax withholding through your employer (via form W-4) so that you have more money in your paycheck over the course of the year!
Related: A Guide for First-Time Home Buyers
2. NCHFA NC Home Advantage Mortgage
The second NC Housing Finance Agency program is NCHFA NC Home Advantage Mortgage, a mortgage based program that is available to both first-time and move-up homebuyers in North Carolina.
Offering a fixed-rate mortgage, you can opt to use a conventional, FHA, VA, or USDA loan. If you opt for a conventional fixed-rate loan, you can receive up to 3% assistance towards your down payment. Otherwise, FHA, VA, and USDA loans qualify for up to 5% in down payment assistance.
The funds that you receive under the terms of the program will be structured as a second mortgage, which will be forgiven after 15 years in your home. Otherwise, if you pay off your loan, refinance, or sell your home, you will be asked to repay some or all of the financial assistance. NC Home Advantage Mortgages are available to those with:
An annual income below $99,000
A credit score of at least 640
A debt-to-income ratio of 43% at a maximum
You'll also need to be purchasing an eligible property for the loan type you have selected. The NCHFA NC Home Advantage Mortgage is available, however, for those looking to buy a single-family home, townhouse, condominium, duplex, or new build.
Finding a participating mortgage lender is also really easy. The North Carolina Housing Finance Agency has relationships with specific lenders across the state. You can browse for lenders directly through the NCHFA website.
The portal will look something like this.
Down payment assistance in North Carolina
3. NCHFA 1st Home Advantage Down Payment
The NCHFA also offers down payment assistance to promote homeownership statewide. Offering up to $8,000 in assistance, the funds are structured as a second mortgage carrying an interest rate of 0%.
To be eligible to receive benefits under the 1st Home Advantage Down Payment, buyers must:
Be first-time homebuyers, military veterans, or purchasing a home within a census tract
Purchase a home in North Carolina
Be a legal resident of the United States
Be using an NC Home Advantage Mortgage
Have a credit score above 640
You'll also need to attest to and move into your new home no later than sixty days after closing. You can take advantage of the down payment program if you are purchasing a single-family home, townhome, condominium, or new home, though a 660 credit score is required in this instance.
Under the terms of the program, the second mortgage will be forgiven using the following schedule:
20% at the end of year 11
20% at the end of year 12
20% at the end of year 13
20% at the end of year 14
20% at the end of year 15
If you sell your home before the second loan balance has been forgiven, you'll owe all or a pro-rated amount back.
Federal homebuyer assistance programs
North Carolina residents are also able to take advantage of a number of federal programs designed to spur homeownership. Among these programs are mortgage programs like:
USDA loans for rural residents
More: Are you a teacher? Learn about special teacher mortgage programs.
1. FHA loans
First-time buyers may be eligible for FHA loans offered by the United States Federal Housing Administration. Loans carry less stringent criteria and must be taken out through an FHA-approved lender.
Typically, FHA loans only require a 3.5% down payment if your credit score is at least 580. Since most conventional loans ask for a 10% down payment, FHA loans can help you purchase a home sooner. You'll also need:
A debt-to-income ratio of less than 43%
Your new home to be your primary residence
Steady income and be able to prove consistent employment
2. USDA loans for rural residents
Believe it or not, the United States Department of Agriculture offers home loans to Americans buying homes in highly rural areas. There are a few different USDA programs, including the Single Family Housing Guaranteed Loan Program.
Under this program, the USDA helps provide low to moderate income households the opportunity to join the ranks of homeownership. The Single Family Housing Guaranteed Loan Program allows program recipients to "purchase, build, rehabilitate, improve, or relocate a dwelling in an eligible rural area" of North Carolina.
It is even possible to get these loans with no money down if you meet the following eligibility requirements:
Be a United States citizen, non-citizen national, or Qualified Alien
Be income-eligible (you cannot exceed 115% of the median household income in the community of your new home)
Agree to occupy the home as your primary residence
Need help locating a USDA eligible area? Use the USDA's Eligibility Site!
Beyond these federal home loan programs, there are also national buyer and down payment assistance programs designed to increase home ownership rates in NC. Among these programs are the Good Neighbor Next Door and HomePath Ready Buyer.
Download our NC mortgage calculator
We recently built a first-time buyer mortgage calculator for our readers to use. This free tool will help you to understand how much home you can afford and can model out your projected payments based on:
Your home's purchase price
Your down payment
Your loan term
Depending on the interest rate environment, mortgages you are considering, and other variables too, you can even change the inputs to see how these variables will impact your monthly payments.
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