Financial Education Center

Purchasing a home can be one of the biggest decisions you can make. Below are questions to ask yourself before buying a home, a quick guide to the process and useful tools to assist you in this life changing purchase.

Before you buy questions:

• Do you have a reliable source of income?
• Have you been continuously employed for the past 2 years and is this likely to continue?
• Do you pay your bills on time?
• Do you have a checking and savings account established?
• Do you file income tax returns to the IRS every year?
• Is your total debt manageable?
• Are all of your regular financial obligations accounted for in your total debt?
• Do you have money saved for a down payment?
• Do you have money to cover closing costs?
• Can you afford a mortgage along with your other bills?
• Do you have time to take care of a house?
• If you’ve ever experienced financial difficulties in the past, can you prove that it was due to events that were out of your control?  

The Process:

• Get your finances in order: order credit reports and check for/dispute any errors
• Find out how much you can spend (See calculators below)
• Get familiar with the mortgage industry
• Hire a loan officer or mortgage broker and get pre-approved for a loan
• Hire a real estate agent
• Start searching for your home
• Make offer and negotiate
• Home Inspection
• Closing

Mortgage Information

Shop for a mortgage before you shop for your new home. Mortgages are just like any other major purchase so it is important to shop around and compare prices, rates and terms. Also make sure to do some research about available options. Below you will find information and resources to get you started.

Mortgage Loan Types

• Fixed Mortgage Loan - A fixed loan simply means the interest rate does not change over the life of the loan so the monthly payment is the same each month. Today there are fixed rate types of mortgage loans that have shorter terms like 15, 10 and even 5 years.
• Adjustable Rate Mortgage Loan - An adjustable rate mortgage loan, or ARM, is one of the types of mortgage loans that rises and falls with the current interest rate as determined by a variety of indices.
• Convertible Mortgage Loan - Convertible loans are the types of mortgage loans that are a fusion of the fixed rate and the adjustable rate mortgages. This type of loan is popular because it allows for more flexibility with mortgage loan options.
• FHA Loan and VA loan - The FHA and VA types of mortgage loans are available for special segments of the population. The Federal Housing Authority or FHA insures loans by lenders who lend to low or moderate income level people to help them purchase a home that they would not otherwise be able to afford.

Mortgage Terms

• Annual percentage rate (APR) is the cost of credit expressed as a yearly rate. The APR includes the interest rate, points, broker fees, and certain other credit charges that the borrower is required to pay.
• Escrow is the holding of money or documents by a neutral third party prior to closing. It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.
• The interest rate is the cost of borrowing money expressed as a percentage rate. Interest rates can change because of market conditions.
• Loan origination fees are fees charged by the lender for processing the loan and are often expressed as a percentage of the loan amount.
• Lock-in refers to a written agreement guaranteeing a home buyer a specific interest rate on a home loan provided that the loan is closed within a certain period of time, such as 60 or 90 days.
• Overages are the difference between the lowest available price and any higher price that the home buyer agrees to pay for the loan. Loan officers and brokers are often allowed to keep some or all of this difference as extra compensation.
• Points are fees paid to the lender for the loan. One point equals 1 percent of the loan amount. Points are usually paid in cash at closing.
• Private mortgage insurance (PMI) protects the lender against a loss if a borrower defaults on the loan. It is usually required for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value.
• Thrift institution is a general term for savings banks and savings and loan associations.
• Transaction, settlement, or closing costs may include application fees; title examination, abstract of title, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneys’ fees; recording fees; and notary, appraisal, and credit report fees.

Mortgage Calculator: Calculate your adjustable mortgage payments 

Adjustable rate mortgages can provide attractive interest rates, but your payment is not fixed. This calculator helps you to determine what your adjustable mortgage payments may be.

Home Buyer and Foreclosure Resources

If you are having problems paying your mortgage over a period of time, your lender can begin a legal process to take possession of or sell your home to recover money owed on the defaulted loan.

If you are facing foreclosure...

• Don't ignore the problem
• Contact your lender to discuss payment options
• Know your mortgage rights
• Contact a counseler to understand your options
• Avoid foreclosure prevention companies and scams

If you need assistance or additional information, please call the HOPE hotline at 1-888-995-HOPE or visit www.ncforeclosurehelp.org

For information on mortgages, resets, foreclosures and other home loan topics you can go to:

North Carolina Housing Finance Agency

The Affordable Housing Group

Housing and Urban Development

Community Reinvestment Association of North Carolina

Center For Responsible Lending

Information on Refinancing from the Federal Reserve