Finding Your Tar Heel State Home: Down Payment Assistance in North Carolina

North Carolina continues to stand out as a top destination for homebuyers. Who doesn’t love the charm that popular Netflix shows (we’re looking at you, Outer Banks) make us weep to call home? But the property prices in the state may make you weep for a different reason. As larger tech firms and millennial families flock to North Carolina, the price tag to buy a house gets bigger and bigger.

“It’s an attractive location if you have a family and want a lot of space,” says expert real estate agent Madison Griffith with Ginger & Co. Real Estate. “I would say our team sees every third buyer as new to the state and relocating for work, [with] Google and Apple coming,” she explains.

In North Carolina, home prices rose around 10% across counties in quarter 2 of 2021, creating a median around $170,000 as reported by the National Association of Realtors. Pairing that median price with an average down payment of 12% makes for an extra $21,000 that most of us don’t have.

This is where down payment assistance (DPA) in North Carolina can help you purchase your dream home. It’s the fairy home godmother you didn’t know existed … until now!

We researched HUD options, interviewed the experts, and brought together 10+ years of real estate experience to share a comprehensive guide to DPA programs in the state. In short, it may be possible to have that dreamy, charming home you’ve been imagining.

Here is what you need to know to make your dollar stretch further and take advantage of North Carolina down payment assistance programs.

How much do you need to buy a house in North Carolina?

You may already be prioritizing southern comforts on your home wishlist. However, you first need to get a feel for median housing costs in the state so you know what you can afford.

In Q2 of 2021, North Carolina’s home prices rose by 10% across all counties, and that number is predicted to continue growing as more homeowners flock to the state. Union saw a median house price at $330,000 on the higher side, whereas Richmond saw a $94,000 median on the lower side. All in all, North Carolina is homebuyer-friendly compared to the national median of a single-family home sale at $353,600 in 2021.

“I have some clients currently searching in the $200,000 range, and that seems to be a pretty modest budget, depending on location. It can be challenging, but a good agent will work to find a place at the price you need,” Griffith shares.

But remember – flexibility is key to finding the best place for you. “You need to be flexible on location or fixer-uppers. There’s a house for everyone if you get creative in the searching process.”

Property taxes are another thing to keep aware of when it comes to remaining flexible to different cities or locations in the state. The North Carolina Association of County Commissioners shared that the average property tax rate as of February 2022 is 0.6760, yet some counties can go as high as 0.95 or 1.0 in Edgecomb and Scotland respectively. That may not sound like a lot, but keep in mind that spending another $10 per year for every $1,000 in home value can stretch a budget uncomfortably.

Your chosen lifestyle will impact the cost of your dream home in North Carolina

North Carolina has an incredibly diverse landscape that feeds into a lot of different hobbies, personalities, and lifestyles. You really can make lemonade with the amount of lemons that North Carolina gives, though a lemon iced tea may be more appropriate.

You’ll want to pay attention to the type of neighborhood that would be best for your family. “North Carolina has mountains close by, suburban areas, spots with more acreage. Everything you could want is here,” Griffith explains. North Carolina has over 320 miles of coastline, over 40 mountains rich with hiking trails, and one of America’s biggest cities ripe with jobs, culture, and a hub for international travel.

Do you prefer the hustle and bustle of the big city Charlotte (median $315,000)? Do you enjoy a rural style of life like Bryson City ($150,000)? Maybe a suburb like Carrboro ($380,000) is the dream.

Factors such as the pandemic, increasing job opportunities, and a lower cost of living have increased the demand for housing in North Carolina. “We are in a competitive market. It’s key to work with an agent that has the experience and knows the tactics to get you closed quickly. For instance, I show my clients properties well below their max budget so there’s room to negotiate and offer an over list price,” states Griffith.

Utilize sources such as the National Association of Realtors to find current pricing across counties when you begin your home search journey.

How much do you need to save for a down payment on a median-priced home in North Carolina?

In 2021, NAR reported 13% as the average down payment. However, a down payment amount typically ranges anywhere from 3% to 20%, and first-time homebuyers don’t put down as much; their average is closer to 7%. Different variables affect how much is appropriate to put down on the property, including:

• Different mortgage loan types
• A down payment amount that allows for “wiggle” money to settle into the home
• The minimum amount needed for loans and assistance programs

How much you need to save comes down to knowing what neighborhood you want, the max down payment you can afford, and the availability of assistance programs. DPA programs usually set a cutoff point that limits what you can get, so you’ll need to be prepared to make up any difference.

For example, let’s use the median home price of $170,000 from Q2 of 2021 to show the fluctuation of down payments depending on the minimum needed for typical loan types:

Many of the DPA programs listed below will cover a good portion of the down payment. However, you usually need to have something saved before you buy and that’s often mandated in the specific program rules.

Ever heard of the due diligence fee in North Carolina?

You may think you’re ready to put a 5% down payment on the house of your dreams! Not to rain on your parade, but North Carolina has something called the due diligence fee, separate from the down payment or earnest money deposit, that you need to have ready to nab that home.

As described by the North Carolina Real Estate Commissions, the due diligence fee gives the buyer the right to conduct due diligence on the property, and prompts the seller to take the home off the market. This fee signals to the seller that you are a credible and worthy buyer who is on the brink of finalizing the sale.

“North Carolina is unique with its due diligence expense. You need to be prepared to put at least this amount down. This is a separate amount outside of the down payment you pay to the seller that you receive back at closing. The kicker is that the money isn’t returned if you back out of the sale,” Griffith shares.

This expense can range anywhere from 1% to 5%, though is highly dependent on the market competition, the selected neighborhood, and the seller’s needs.

Types of down payment assistance in North Carolina

Down payment assistance in North Carolina supports first-time homebuyers with low-interest loans or grants for down payments. These programs help alleviate the financial stress of a home purchase and reduce the amount you need to have saved, and there are more than 2,000 available via state, county, and city governments.

DPA is typically for first-time homebuyers (which means you haven’t owned a home in the last three years). Outside of that, you can expect a minimum required credit score and a low-to-median income level cutoff.

Down payment assistance programs are all unique, but the most common types include:

• Grants: Funds you don’t need to pay back
• Second mortgage: Loans with zero or low-interest rates and often with deferred payments
• Forgivable second mortgage: Loans that only need to be paid back if you move, sell, or refinance in a specific number of years, otherwise, it’s forgiven

Grants will always be one of the easiest assistance types to receive, as it’s considered a gift without needing to be repaid. Forgivable second mortgages can also carry this allure of not having to be paid back — but remember, not all second mortgages come with potential forgiveness.

A forgivable mortgage is completely forgiven after a set number of years as long as the homebuyer makes on-time payments and doesn’t sell or refinance the house. You are tied into living on the property as your primary residence for anywhere between 5 and 20 years, depending on the program.

Who handles down payment assistance in North Carolina?

The North Carolina Housing Finance Agency is a key player in the state’s down payment assistance programs. It works to make buying a home more affordable in North Carolina

But don’t underestimate the power of city or county programs! For example, Greensboro, Charlotte, and Winston-Salem all offer DPA programs if you’re looking to settle down in specific geographical areas. Assistance of up to $20,000 makes different neighborhoods a lot more attractive.

Before you dive into program research, Griffith encourages talking to a lender. “The first step is getting prequalified for a loan and making sure you meet the lender qualifications for a mortgage. You want to make sure you’re eligible, as that dictates your budget, which in turn sets the max down payment and closing costs you can afford.”

How do you qualify for down payment assistance?

DPA programs mean you don’t necessarily need a massive savings account (or need to drain your savings account) when it comes to your first home. However, there are qualifications to access these opportunities.

The majority of DPA programs have the following requirements:

• Be a first-time homebuyer (you haven’t owned a home in the last 3 years)
• Make an annual income in the low to median range
• Have a credit score of 640 or higher (some assistance programs may accept lower credit scores)
• Be purchasing a primary residence in North Carolina
• Move into the residence shortly after closing

Just because you don’t qualify right off the bat doesn’t mean you should discount these programs. Griffith shares, “We work closely with the lenders, and they often have ideas on how to do things like increase your credit score. Waiting a month or two could give you the time to up your score by 20 points and ensure you qualify.”

Each DPA program will differ in its requirements. Additional qualifications may include taking a HUD-approved buyer education course, selecting certain properties, and qualifying for a loan with an approved lender. There are also special programs available for military service people, Native Americans, and public servants.

What about closing costs?

There is so much attention on down payments that we often forget their pesky cousin — closing costs. These are the various fees attached to purchasing your home, and they are not considered part of the down payment. They could include a home inspection fee, title search, and mortgage origination fee.

Between 2% and 5% of the loan amount is a typical average for closing costs.

We have good and bad news. The good news: Some DPA programs will also cover closing costs. The bad news: Not all DPA programs will cover closing costs.

“Assistance for closing costs often is lender-specific,” Griffith explains. “They may be able to offer you a credit towards closing costs or some other avenue that eases the expense. There are always different methods, and agents specialize in brainstorming to find a way around obstacles like this.”

Choose your down payment adventure!

You’ve got the fundamentals of down payment assistance under your belt. Now it’s time to find the specific programs that could make your dreams come true — we can already see you sipping iced tea on your porch swing.

NC Home Advantage Mortgage™

The state’s Housing Finance Agency supports many new homebuyers with its NC Home Advantage Mortgage™. The program gives first-time homebuyers access to a fixed-rate mortgage and down payment assistance of up to 5% of the loan amount when purchasing a home in the state. This program functions as a deferred second mortgage, and you won’t receive 100% forgiveness until year 15 without refinancing, selling, or transferring.

Eligibility requirements include a credit score of 640 or higher, annual income not exceeding $99,000, and occupying the residence within 60 days of closing. You also need to apply for a FHA, USDA, VA, or conventional loan through a participating lender and meet any loan pricing limits.

The type of property also matters with this program. Only single-family homes, townhouses, condominiums, duplexes, and new manufactured homes are eligible.

Learn more about the NC Home Advantage Mortgage here.

NC 1st Home Advantage

The Housing Finance Agency also offers the NC 1st Home Advantage for those who qualify for the NC Home Advantage Mortgage. The program offers up to $8,000 in down payment assistance for first-time buyers or military veterans purchasing a primary residence in North Carolina. This comes in the form of a 0% interest deferred second mortgage, forgiven at the end of year 15 if you haven’t sold.

“This is the most popular assistance program we are seeing, and it’s available in every county, making it more accessible for eligible homebuyers,” Griffith states.

Requirements include a 640 or higher credit score and occupying the home as your primary residence within 60 days of closing. The program also has income limits that change by county, such as an $81,000 annual income limit in Caswell to a $75,000 limit in Madison. The sales price limit remains consistent at $345,000.

Check your eligibility and learn how to apply for the NC 1st Home Advantage program here.

Greensboro Home Buyer Down Payment Assistance

The Greensboro Home Buyer Down Payment Assistance is an example of a forgivable mortgage offered by Housing Connect GSO. A first-time homebuyer receives up to $10,000 for a down payment and closing costs in the form of a 5-year, 0% interest loan. This is forgiven after 5 years of remaining in the home in Greensboro. Plus, there could be an extra $5,000 available if you buy a home in a redevelopment area!

To be eligible, you need to be a first-time buyer and purchase a new or existing home, complete a homebuyer education program, and secure a fixed-rate 15-year or 30-year mortgage. A maximum income limit also applies. For a household of two or fewer people, the limit is 120% of the area’s median income. For a household of three or more people, the limit is 140% of the area’s median income.

This program can be more time-consuming, as a qualified inspector needs to review the property and a city contract needs to be filed. But don’t fret! Read more about the process for this particular program here.

“You do need to submit paperwork for underwriting, but the North Carolina Housing Department typically turns those around within 48 hours. You can still close very quickly,” Griffith shares.

Homebuyer Assistance Program, Raleigh

Raleigh runs its Homebuyer Assistance Program through its Housing and Neighborhoods Department, funding up to $20,000 with a 0% interest forgivable loan. The loan is only forgiven after 20 years in the home without selling. Funds can be used for both down payment and closing costs for properties up to $275,000 in price.

Qualifications include being a first-time home buyer, purchasing a property in Raleigh, and completing an education course through DHIC. The program also has specific income limits from $53,600 for a 1-person household up to $101,000 for an 8-person household.

You need to work closely with the Housing Neighborhoods Department, which may create additional time commitments. Learn more about the assistance program here to see if it’s worth the time investment.

Winston-Salem Homebuyer Assistance Program

Another city-specific DPA program is the Winston-Salem Homebuyer Assistance Program, offering up to $14,800. This comes in the form of a second mortgage forgiven at the end of 10 years of living in the home. Homebuyers must have an income of 80% or below area median income, and can’t have assets exceeding $10,000.

Additional requirements include completing homebuyer counseling, putting down $1,000 toward the purchase, doing a property inspection, and obtaining a primary mortgage at a fixed rate.

If you’re Winston-Salem bound, read up about the Homebuyer Program here.

How to find down payment assistance to buy a home?

Down payment assistance programs in North Carolina can be challenging to find. They are often highly localized and funded periodically. Yet it is always worth the research effort to make homeownership more accessible!

Here are a few ways to search:

• Through your real estate agent
• Asking your bank if they have or know of one
• Asking your lender if they know and can work with them (not all lenders will be DPA program friendly)
• Searching state-by-state guides
• Checking the municipalities where you want to live
• Searching over the web and social media

“There’s a lot of hands-on-deck when it comes to finding a client their perfect home. Work with lenders to find different programs, and work with agents to find homes that fit program requirements,” Griffith shares.

Why working with a top agent is key!

A trusted real estate agent is always there to help identify down payment assistance programs you may not know about, and they can help guide you through other processes in the DPA journey.

“It might be a little harder to get an offer accepted using down payment assistance. That’s where your Realtor® needs to be creative and make your offer more appealing,” discloses Griffith.

Lean on your real estate agent for support throughout the homebuying journey as they’ll be your go-to in making your North Carolina dream come true. Get ready to brew that pitcher of sweet iced tea to serve to neighbors on your wraparound porch … and save thousands on your down payment.

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