According to the North Carolina Housing Coalition, 66 percent of North Carolinians or their families own the home in which they live. With that in mind, it's likely you or someone you love will take out at least one home mortgage loan.
Taking on a mortgage is a huge financial step, even for people who already have experience buying and owning a home.
Whether a mortgage loan will be your first or not, there is an abundance of information that needs to be gathered and considered before diving into the process of buying a home.
First, there are numerous free and not-for-profit organizations throughout the state that offer free or low-cost financial counseling. Getting perspective and guidance from professionals whose job it is to protect you, the consumer (instead of hoping to make a profit by selling a loan or a house) can be invaluable and help save you a lot of time and money.
Second, educate yourself about mortgage loans, rates and programs offered before shopping for a house. Treat the mortgage as if it, too, is a large and important purchase.
Sandy Wheat, executive director of the N.C. Council on Economic Education, warns consumers to do their homework.
"When purchasing a vehicle or a home, it is important to shop around for the best interest rates as they can vary considerably among lenders," Wheat said.
Check and compare interest rates, prices and terms among as many lenders as you would like, and be willing to say "no" to a loan and waiting until the market becomes more favorable.
Doing this before falling in love with a specific home will allow you to shop and think as a level-headed consumer instead of risking settling on a mortgage to ensure getting a specific home.
- Fixed Mortgage Loan: The interest rate is "fixed" and remains the same, guaranteeing the same monthly payment over the life of the loan. Usually offered as 30-year loans, they can also be found in increments of 5, 10 and 15 years.
- Adjustable-rate Mortgage Loan: A staple since the 2008 housing crash, the adjustable-rate mortgage has an interest rate that periodically adjusts to match market conditions, meaning rates of the loans will rise or fall based on current lending rates instead of remaining static.
These loans are attractive to both lenders and buyers, because some of the risk is moved from the lender but also offers an opportunity for a buyer’s mortgage payment to drop if interest rates fall.
- FHA Loan: FHA loans are a great option for first time buyers who might struggle to meet the 20 percent down payment option. FHA loans can offer down payments as low as 3.5 percent and low closing costs.
- VA Loan: Similar to the FHA loan, VA loans are alternatives to homebuyers who might not be able to afford a down payment. Since the VA guarantees the loan, it gives lenders more flexibility to work with buyers.
Finally, the consumer should know the total cost of their loan.
Credit costs money, says Marquita Robertson, financial education director of the Office of the State Treasurer of North Carolina.
"Consumers need to know the true cost of their loan," Robertson explained. "Most loans include information at signing that outlines the total cost to the consumer, such as a Truth in Lending Worksheet for a mortgage or balance pay-off details in a monthly credit card statements."
There's a lot that goes into choosing the right mortgage for you and your family, and what’s covered here is just the tip of the iceberg. The North Carolina Department of State Treasurer offers a number of resources to help you make the best choice for now and later when it comes to a mortgage loan.
This story was written for our sponsor, North Carolina Department of Public Instruction.