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What's an FHA Mortgage?
The Federal Housing Administration (FHA) was a creation of the National Housing Act of 1934. The goal of this legislation was to invigorate home ownership and give homeowners refinance solutions not possible during the great depression. Read More
FHA does not directly lend to the public, but works with approved lenders to deliver mortgage money.
The Federal Housing Administration insures financial institutions against loss in the event of home foreclosure. There are maximum mortgage amounts, and the maximum loan amount will deviate from state to state and county to county you can see the North Carolina FHA mortgage limits on the FHA Loan Page.
- The minimum down payment for an FHA mortgage is only3.5%.
- No first time home buyer requirement
- No early repayment penalty
What's a jumbo mortgage?
To understand a jumbo loan, it’s important to know how banks lend money to home buyers.
Prior to 1938, prospective home buyers would go to their bank and request a loan to buy a house. The bank considered the buyer’s qualifications (i.e. employment, savings, down payment, etc.) just as banks do today. Then, the board of directors would approve or turn down the buyer’s application. Assuming the bank accepted the application, the bank would use “its money. . . (the depositor’s money)” to compensate the seller. The homebuyer would then pay back the bank with interest. But when the vault was empty, the bank stopped loaning money.
Banking was like a waiter with a water pitcher filling empty glasses around the dining table until the pitcher ran dry. Only after bringing in more deposits could the bank keep lending money. Prospective homebuyers were forced to move from bank to bank to locate a bank that could provide them loan financing. So along comes the great depression. Countless number of people are unemployed, banks are foreclosing on home owners, and needless to say, banks are hesitant to loan money to anyone, regardless of whether they’re qualified buyers or not. In response to the lack of lending, the Congress created the Federal National Mortgage Association (Fannie Mae) that would buy home loans from banks. Here is how it worked.
The bank would analyze the borrower’s likelihood to reimburse the bank just like before, and if qualified would advance the financing to the home buyer. The bank then sells the mortgage loan to the federal government . . . and Uncle Sam reimburses the bank with a commission for generating the mortgage loan. With this arrangement, banks never run out of money, and the bank can lend, lend, lend.
So what is a jumbo mortgage?
Congress decides the maximum mortgage amount that banks can sell to the federal government. Most of the time, but not always, the maximum loan on a one family (one unit) home that Fannie Mae (and it’s sister agency, Freddie Mac) will buy is $417,000. These loans are commonly known as conventional or conforming mortgages.
Anything greater than this amount is referred to as a jumbo mortgage and Fannie Mae and Freddie Mac are prohibited from buying these mortgages from the lenders. Therefore, the bank is forced to loan it’s money to finance the loan greater than the county limit. Interest rates are typically greater on jumbo loans.
The loan caps differ from state to state and county to county and the number of living units (i.e. one unit, two units, three units and 4 units). You can see the county lending limits on the North Carolina Fannie | Freddie Limits
What's the median home price for North Carolina counties?
Proceed to HUD Median Sales Price
What's the median income for North Carolina counties?
Proceed to the HUD MEDIAN INCOME LIMITS