Many home buyers in NC are trying to figure out just how much cash they are going to need to buy a house. Two years ago, it wasn’t as big a question, because you could use no down payment programs (literally not needing any money for a down payment) and then you could get the Seller to pay closing costs… but now folks want to know: How Much Do You Have to Put Down on a First Home in NC?
The Real Estate Market’s changed in past year across North Carolina. Not only are we seeing the Boomers compete with Millennial’s for the same house, but Seller’s (and their agents) do not want to take Borrowers who have FHA Mortgage Amendatory Clauses in a contract.
Why is that? Well, a Government Loan Buyer is considered a slightly less attractive (riskier) Buyer than someone who presents an offer with a Conventional Loan. Plus, some Agents believe that the FHA / VA Amendatory Language means that the Appraiser is going to be particularly tough on the Condition of the home (which it is not).
While it’s not true that someone who is using FHA financing is going to take longer, etc. to close on the mortgage – it’s worth noting that at this point, FHA loans no longer have the lowest costs, or the most flexible underwriting guidelines. Yes, if you have some dinged up credit it will be the best solution, but other than that – Conventional Financing currently has many benefits, especially for first time home buyer.
How Much Do You Have to Put Down on a First Home in NC?
The “Urban Myth” is that you need 20% for a down payment. I don’t think even my parents needed that much!
No, you don’t even need a minimum of 5% down payment to buy a house. There are multiple Conventional Mortgage programs that only require a 3% down payment to buy a house. And because there are several different government grants for first time home buyers, in many cases you will not need any down payment at all.
**To be clear... there really aren’t GRANTS to buy a home available to first time home buyers (or anyone else for that matter) from the NC Housing Finance Agency. Folks just refer to the programs as Grants.
In reality the programs have no monthly payments, no interest charged, and if you live in the home for the specified time for the program (there are varying time requirements dependent on which program you use), the money is fully forgiven and you do not owe a dime.
These are actually fully forgivable second mortgage loans. They are only available from those institutions that are approved by NC Housing, and the interest rates are a bit higher – because they are GIVING YOU the down payment. Not all Lenders are approved to offer these programs, we are Top Tier Lenders with NC Housing – meaning we do a ton of these loans in NC.**
VA Home Loan Down Payment Requirements
If you or your spouse is a Veteran it’s possible that you could qualify for a VA Home Loan. These loans are 100%, no down payment required mortgages for Veterans and often offer the lowest mortgage rates. They have fairly easy qualifying guidelines, have no minimum credit score requirements and no monthly PMI. There’s no limitation on where you can live, and the down payment requirements come when you are getting a VA Jumbo Home Loan or you have Partial Entitlement.
The Seller is allowed to pay 4% towards Closing Costs on a VA Home Loan… right now, in the fall of 2018, we are not seeing many Sellers paying that much. The Veteran will likely need SOME CASH to cover the Closing Costs. These Closing Costs can not be rolled into the Loan Amount.
These loans are for Owner Occupied property. So, we can’t make a VA Loan on a “Vacation” Home or Investment Property.
The good news is that there is a provision that allows you to own two homes, and still be able to use the VA Home Loan program. For example, if you are stationed at Fort Sam Houston and you buy a house in San Antonio, and then you are deployed… and your spouse wants to live near family in NC. In that situation, we can probably use your benefits to purchase the home in NC. We must prove a “net tangible benefit” and your Spouse must live in the home for at least 6 months out of the year.
USDA Home Loan Down Payment Requirements
USDA Home Loans also have very good mortgage rates, and their mortgage insurance rates are some of the lowest available. There are some income limits for the program, and there limits regarding where you can purchase a home, although every county in NC has some spot that qualifies.
USDA Home Loans do not have a down payment requirement, so the ONLY thing you will need to negotiate and save for will be your Closing Costs. Closing costs can run upwards of $5500 for a $200,000 home. This can be a gift, we can pay part of it, and it can be negotiated with the Seller.
FHA Mortgage Down Payment Requirements
FHA has a down payment requirement of 3.5%. There are no restrictions about where the home must be located like USDA Home Loans, and there are no income restrictions as there are for many of the First Time Home Buyer Grant Programs.
Documenting Gift Funds to close on your first home can be tricky. If you receive the gift funds in April (for instance) and you are not purchasing the home until August – then the money will have “seasoned” in your account, and very little documentation is required… but let’s say that you are getting the money pretty close to the time of loan approval, then we have a TON of documentation to do.
As you might know, you do NOT have to be a First Time Homebuyer to use FHA financing… but if you want to take advantage of the 3% Down Payment Grant from NCHFA, you need to be either a First Time Home Buyer, or you must not have owned a home in the last 3 years.
Conventional Loan Down Payment Requirements
In 2018 there are so many buyers looking for homes, and so few properties on the market, Seller paid Closing costs are almost non-existent. We now tell folks that you should have at least 2.5% of your sales price set aside for your portion of the closing costs.
Because there are too many people looking for a home, and not enough of them on the market – the chance of a Seller taking an offer where they need to pay closing costs is slim (I’m just being honest with what we are seeing right now, a year from now, this could all change). The money for the closing costs can be a gift (or a series of gifts) or it can come from the sale of a bass boat (for instance), but you can’t get an unsecured loan for it (not coming from your credit cards). We are going to ask for 2 months Bank Statements, which is one of the ways this sort of thing is “found.”
Those NC Housing Down Payment “Grants” we were talking about ALSO work with low down payment Conventional mortgages. They also offer extremely low PMI rates, AND they generally price out with lower mortgage interest rates than other Conventional Mortgage Loans.
FHA and USDA take a pretty hard stance AGAINST Income Based Repayment Student Loan debt. They require us to either verify that you are in a level, fixed payment plan – or we have to take 1% of the balance. If you are looking at $120,000 in debt that’s $1200 a month! Fannie Mae has an “easier stance” on these IBR Student Loan Payments.
QUESTION: Credit – Student Loans (Fannie Mae Reference B3-6-05 Monthly Debt Obligations – Student Loans)
Some income-driven repayment plans allow a borrower’s payment to go to $0. In that case, how is the student Loan payment calculated?
ANSWER: As long as your can provide documentation showing the income driven payment is $0, you can qualify the borrower with $0 for the monthly qualifying payment.
In addition to the programs listed above, there are numerous other programs available to first time home buyers in NC. Sometimes these programs are offered through a particular municipality, like the Raleigh City 2nd program.
For instance, the HomePath Ready Buyer program gives new homeowners 3% of the purchase price toward closing cost assistance upon completion of a home buyer education course. Another option is the HomeReady program, which applies to homes in lower-income neighborhoods. These are FNMA Programs available across the state.
How Much Do You Have to Put Down on a First Home in NC?
Depending on your circumstances, you can probably buy a house with no down payment in NC. If you don’t meet the Income Caps for the County you are buying in – you might need 3%. Additionally, you should count on having about 2.5% for closing costs in the Fall of 2018. This could change if we move out of low inventory for First Time Home Buyer Properties.
Many loan officers might do a couple of loans for first time home buyers a year – few of them FOCUS on the programs available through NC, like our office does.
Have more questions about How Much Do You Have to Put Down on a First Home in NC? Call us. This is what we do. We help first time home buyers with that first purchase, and we work to be sure you are in the best program for your situation, and that you have the lowest payments available. Call Steve and Eleanor Thorne 919 649 5058.
Originally posted at NCFHAExpert.com