How to Buy a House in North Carolina: 6 Steps

Buying a house is a major financial decision that involves weighing multiple factors. North Carolina's average home value is $335,760, lower than the national average of $362,481. This difference can impact your budget and financing options.

Understanding down payment assistance programs, mortgage types and state regulations can make homebuying smoother in the Tar Heel State. MoneyGeek offers tips to guide you, from saving for a down payment and picking the right location to finding the best loan for your needs and credit score.

North Carolina's homeowner vacancy rate in the second quarter of 2024 was 0.8%, according to the U.S. Census Bureau. This rate measures the percentage of vacant homes available for sale.

A rate of 0.8% means a shortage of homes for sale compared to demand. Due to limited inventory, buyers may face tough competition and rising prices. A stable rate of around 2% offers buyers more choices and flexibility.

Review your financial and credit history before buying a home in the state. A solid financial profile can boost your chances of approval when applying for a mortgage.

Your credit score impacts the mortgage loans and interest rates you qualify for. A higher score improves your chances of getting a better rate. In the third quarter of 2023, North Carolina’s average credit score was 709, according to Experian.

If you have a bad credit score (below 580 on the FICO scale), you can still buy a house, but it may be harder to get mortgage approval. Check the table below for options based on minimum credit score requirements.

Source: Experian

Your DTI ratio shows how much of your monthly income goes to debt payments, helping lenders decide how much mortgage debt you can handle. North Carolina's average mortgage debt was $203,672 in the third quarter of 2023, according to Experian, highlighting the added financial responsibility of owning a home in the state.

Monthly debt payments factored into your DTI include your mortgage, student loans, car loans, credit card payments and other debts. Use our debt-to-income ratio calculator below to find your front-end DTI (housing expenses) and back-end DTI (all debts). This tool also shows your total monthly debt payments.

Buying a house you can't afford can lead to financial strain. To avoid this pitfall, use the 28% rule, which suggests spending no more than 28% of your monthly income on your mortgage. This ensures you have enough funds for other expenses.

In April 2024, the median annual income in North Carolina was $45,440, according to the U.S. Bureau of Labor Statistics. That’s a gross monthly income of $3,787 before taxes. Applying the 28% rule, aim to spend no more than $1,060 monthly on your mortgage.

Use our mortgage calculator below to estimate your monthly payment in North Carolina.

A down payment is an upfront payment made when purchasing a house, typically 20% of the home's purchase price. This percentage is often the standard, but it can be a significant obstacle for many homebuyers. In North Carolina, where the average home value is $335,760, a 20% down payment would be $67,152. For homes valued above average at $345,000, the down payment would rise to $69,000.

Fortunately, a 20% down payment isn't always required. For example, government-backed loans such as VA loans require no down payment, while FHA loans need only 3.5%.

If you put down less than 20%, your lender may require you to get private mortgage insurance. Use our PMI calculator to estimate your monthly PMI premium based on your credit score and down payment.

North Carolina offers several down payment assistance programs to make homeownership possible, especially for those who struggle to save enough for a down payment. The North Carolina Housing Finance Agency is a key provider of these programs.

See the table below for details on the state's down payment assistance programs.

Finding the right location in North Carolina involves evaluating various factors. Consider the average house price in your desired area and its proximity to family, friends, workplace and school. Access to public transportation, parks, restaurants and shopping centers is also important in choosing the best living place.

The cost of living is another factor to consider when choosing your new home. According to the Missouri Economic Research and Information Center (MERIC), North Carolina's cost of living index for the first quarter of 2024 was 98.5, below the national average of 100.

Consider these expenses when choosing the right location:

• Food
• Health care
• Clothing
• Utilities
• Education
• Transportation
• Entertainment

Check the table below for average home values in some North Carolina cities. You can also use our cost of living calculator to estimate expenses in different areas.

Source: Zillow

Working with a real estate agent can speed up your house hunt in North Carolina. They give advice, handle paperwork and offer an expanded list of property options you wouldn't access alone. Real estate agents can also recommend other service providers, like title companies and inspectors, to help you buy a home.

When finding a real estate agent, do your due diligence and interview those with experience in the neighborhoods you're interested in. Consider these tips:

• Find someone who matches your needs and personality.
• Verify the agent's credentials, training and license.
• Ensure they have in-depth knowledge of the area.
• Shop around for agents and compare their rates.

To find or verify real estate agents in the state, you can also use the North Carolina Real Estate Commission's license holder search tool.

The homebuying process involves finding a mortgage that fits your budget. Options include conventional, jumbo, FHA, VA and USDA loans. You can select terms ranging from 10 to 30 years and decide between a fixed-rate mortgage and an adjustable-rate mortgage (ARM). Choosing the right financing can enhance your approval odds and save money over time.

Mortgage interest rates can change daily due to factors like the loan type, the lender and the economy. While the interest rate is the percentage charged on the loan amount, the annual percentage rate (APR) reflects the actual cost of borrowing by including additional fees and costs associated with the loan.

As of October 2024, the APR for a 30-year fixed conforming loan in North Carolina is 5.85%, while the APR for a 30-year fixed rate FHA loan is 7.63%. Check the table below to see the current rates in North Carolina by mortgage type.

Securing a mortgage pre-approval is a wise step before you start house hunting in North Carolina. It helps you understand how much you can afford and demonstrates to sellers that you're a serious buyer. Lenders typically provide a pre-approval letter outlining the loan amount you qualify for. This letter is usually valid for 60 to 90 days, giving you ample time to find a home within your budget.

To get pre-approved, you need to submit several documents to your lender:

• Proof of income, such as pay stubs or tax returns
• Credit history, including credit score reports
• Employment verification, like a letter from your employer
• Identification, such as a driver's license or passport
• Details of your debts and assets

While mortgage pre-approval involves a thorough financial review, prequalification is more informal. Prequalification provides a general idea of how much you can borrow based on self-reported financial information. It doesn't carry the same weight as pre-approval, which involves a detailed assessment of your financial situation.

Home inspections in North Carolina are highly recommended to uncover potential issues before purchasing a property. Inspectors assess the structure, electrical systems, plumbing and HVAC units. Their report highlights the property's condition and necessary repairs, giving buyers a clear understanding of its state.

For instance, discovering a faulty foundation or outdated wiring during the inspection could lower the home's appraisal value and affect financing. If the repairs are too costly or pose safety risks, the buyer may withdraw their offer, avoiding unexpected expenses.

The North Carolina Home Inspector Licensure Board (NCHILB) regulates home inspections in the state. To get a license, inspectors must pass the NCHILB examination and comply with state standards of practice. These requirements help ensure licensed inspectors have the expertise to conduct thorough and reliable home inspections.

If you're looking for a home inspector in North Carolina, ensure they're licensed. Check reviews from past clients and ask for references to gauge their reliability and expertise. To find or verify licensed home inspectors in the state, you can use NCHILB's license search tool.

Home appraisals objectively assess a property's fair market value, helping buyers and lenders ensure the agreed-upon price reflects the property's worth. The median cost of a home appraisal in 2023 was $500, according to the 2023 Appraisal Survey from the National Association of Realtors (NAR).

While inspections and appraisals are integral to purchasing a home, they serve different purposes. A home appraisal determines the property's market value, whereas a home inspection evaluates its physical condition. Lenders require appraisals to verify that the property's value is sufficient to cover the mortgage amount, protecting their investment in case of default.

Closing is the final step in buying a house in North Carolina, marking the official ownership transfer when you receive the keys. Your lender must provide you with a closing disclosure document three days before the closing. This document outlines your loan terms, projected monthly payments and closing costs. Plan a final walk-through of the property with your real estate agent near the closing day to ensure it remains in the expected condition.

During the closing day, you'll review and complete various documents to finalize your home purchase. These documents ensure all legal and financial aspects are in order. Here are some documents you need to sign:

• Final loan application: Confirms your mortgage terms, including the interest rate and payment schedule. It ensures that you and the lender agree before the loan is finalized.
• Deed transfer: Transfers property ownership from the seller to you. It's recorded publicly to officially recognize you as the new owner.
• Promissory mortgage note: A legal promise to repay the loan according to the agreed terms. It outlines the loan amount, interest rate and repayment schedule and is a binding agreement between you and the lender.
• Homeowners insurance: Covers repair costs or replacement if your property is damaged. Homeowners insurance in North Carolina will financially protect you against fire, theft and natural disasters.

Closing costs are the fees required to finalize the mortgage. North Carolina's average closing costs are $2,851, according to NAR. These costs include:

• Appraisal fee: Covers the cost of a professional appraiser determining the property value.
• Title search and insurance fee: Ensures the property's title is clear of liens or disputes.
• Escrow deposit: Funds held in escrow for property taxes and insurance premiums.
• Prepaid costs: Upfront payments for homeowner's insurance and property taxes.
• Other closing costs: Include various administrative and processing fees associated with the loan.

Learning about the different first-time homebuyer programs in North Carolina can help you own a home faster.

Buying a house in North Carolina is a financial commitment that spans years. We answered some frequently asked questions to help you kickstart your homebuyer journey.