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Understanding Mortgage Products in North Carolina

By Colleen Colkitt

There are two basic categories for mortgage packages. Under the two types, ARM or adjustable-rate mortgages, and fixed-rate mortgages, there are several types of sub-categories to consider as well.

Conventional Loans

Conventional loans can either be ARM or fixed-rate mortgages. A conventional loan is typically considered "conforming" if it is $417,000 or less for a single-family home. In certain states and in certain wealthier areas of the country, these conventional loan limits may be higher, like in Alaska and Hawaii for example.

According to recent standards, anything below a 740 credit score will have fees added on, because borrowers credit scores can drop in comparison to the value of the loan. This is called loan-to-value, or LTV. A loan that is above the set lending limits is called a nonconforming or jumbo loan.

Most of these conventional loans can be either fixed or adjusted interest rates. The terms of these rates can be 15 or 30 years, depending on the particular lender, and these can either be fixed rates or adjustable.

ARM Mortgages

Many people who settle on an adjustable rate mortgage intend to sell the property before the rate adjusts and increases. This means they probably expect their income to increase over time as well but the borrow must be sure they can afford to pay the higher mortgage rate once it increases.

Adjustments are made according to the interest rate index, like the LIBOR rate. The rates are estimated interest rates.

Other Types of Loans

In addition to conventional loans, there are alternatives that are sometimes government sponsored. Due to the new federal housing bill, Federal Housing Administration (FHA) loans are more difficult to get, but they are increasingly popular among first time home-buyers. An FHA insurance payment is a two-part process. It includes an upfront mortgage insurance premium, or UFMIP, and an annual premium as well, which is the mutual mortgage insurance, or MMI.

The FHA borrower will pay monthly mortgage insurance until the loan is paid to 78% value, and the MMI is paid in addition to that monthly payment.

VA mortgage loans are also very appealing, but are limited to those borrowers who can meet eligibility guidelines concerning government military service. These loans are issues by the U.S. Department of Veteran Affairs, and it's a long-term private financing loan where no down payment is required.

Assuming the Veteran has no additional monthly payments, the VA loan allows the Veteran to get more than 40% of the monthly income, which is more than the standard conforming loan, which is only 28%.

Which Type of Mortgage Is Right For You?

Different mortgage loans will be appealing to you depending on your financial situation or geographic area of interest. Consider the insurance rates compared with the value of the duration of the loan, which will help when determining loan-to-value ratios. These basic mortgage products are most commonly used by home-buyers. Consult a mortgage broker to discuss your options and identify the product that works best for you.

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