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Glossary of Terms
Homebuyers are understandably concerned about interest rates when applying for a loan. But there are other important factors to consider. Choosing the right mortgage can result in significant savings, while choosing the wrong mortgage can be very costly. There are a range of different types of mortgages, most of which fall into the following categories:
• Conventional Mortgages
• Government Mortgages - FHA, VA and USDA
• Down Payment Assistance Programs - House Charlotte, Bond Programs
• Home Equity Lines of Credit
Conventional mortgages are backed by the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac. They typically require a minimum down payment of 5%. Mortgage insurance may be required, depending on the size of the down payment. Common types of conventional loans include the following:
Conforming: Conventional loans of $417,000 or less are called "conforming" loans. Loans above $417,000 are called "jumbo" loans, and loans greater than $1,000,000 are considered "super jumbo."
Interest Only: With an Interest Only loan, the monthly payment is applied only to the interest on the outstanding principal balance. Interest Only payments are allowed during the initial term (3 10 years) of the mortgage. After this term, the balance (principal and interest payments) is amortized for the remaining term of the loan. Back to top
Government mortgages are backed by a variety of different government agencies, each with its own requirements regarding mortgage insurance, fees, etc. They include the following:
VA (U.S. Department of Veterans Affairs): VA loans are guaranteed by U.S. Department of Veterans Affairs, and offer the option of 100% financing, with a maximum loan amount of $417,000. At closing, a "funding fee" of 0-3.15% is paid to the VA in lieu of mortgage insurance. This fee secures the guarantee on the loan, and may be rolled into the mortgage. Eligible borrowers include veterans, active duty service personnel, and select members of the Reserves and National Guard. More information >>
FHA (Federal Housing Administration): FHA loans are insured by the Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development (H.U.D.). Borrowers typically provide a small down payment (3.5% min), which may be obtained from a non-profit organization. A Mortgage Insurance Premium (MIP) is paid to the FHA at closing, and may be included in the loan. Additionally, a small monthly insurance premium is added to the monthly payment. More information at hud.gov >>
USDA (U.S. Department of Agriculture): Under the Rural Development Program, the USDA offers guaranteed loans with 100% financing and a small .3% mortgage insurance requirement. At closing, a "funding fee" of 2% is paid to the USDA. This fee secures the guarantee on the loan, and may be rolled into the mortgage. In order to qualify, borrowers must meet income guidelines, and the property must be located in an eligible rural area. More information at the USDA web site >> Back to top
Down Payment Assistance Programs
As of October 2008, down payment assistance can no longer be provided by home sellers or new home builders. However there are still resources available, in the form of second mortgages, for down payment assistance in Charlotte and throughout North Carolina.
House Charlotte: The Mecklenburg County Department of Neighborhood Development offers homebuyers down payment assistance of $7,500 to $10,000, based on the neighborhood in which the property is located, household income, and other requirements. Employed police officers are eligible for additional assistance. More information >>
North Carolina Bond Program: Administered by the North Carolina Housing Finance Agency, the N.C. Bond Program offers first-time homebuyers down payment assistance of up to $8,000, or up to $14,900 on a foreclosed property, with the flexibility to purchase a home in a wide geographic area throughout the state. More information >> Back to top
Home Equity Lines of Credit
A Home Equity loan is a "subordinate" or secondary loan. Typically referred to as a second (or even third) mortgage, this loan is separate from the borrower's primary mortgage, and usually smaller. It is attached to the equity in the house, and can either be a revolving line of credit, or a fixed amount. Back to top