{"id":95153,"date":"2019-12-06T14:30:30","date_gmt":"2019-12-06T21:30:30","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=95153"},"modified":"2024-02-19T08:08:26","modified_gmt":"2024-02-19T15:08:26","slug":"pros-and-cons-of-different-mortgage-options","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/pros-and-cons-of-different-mortgage-options","title":{"rendered":"4 Mortgage Options: Evaluating the Pros & Cons of Real Estate Financing"},"content":{"rendered":"

When it comes to buying a house, you need to think about more than floor plans, square footage, and school districts. From a financial perspective, you have to consider important topics like loans and mortgages. If you\u2019re a first-time or inexperienced homebuyer, do you know your options?<\/p>\n

Understanding Your Home Mortgage Options<\/h2>\n

The finance\/mortgage industry really isn\u2019t very different from other industries. Take the jewelry industry as an example. When you go shopping for a ring, you typically visit a couple of different stores and look through the display case at different options. You might even pick up a couple and take a closer look. While you can\u2019t physically hold a mortgage, it\u2019s still a product.<\/p>\n

\u201cWhen it comes to loan options, there are a ton<\/em>, with each appealing to different types of buyers\u2014some for those without sparkling credit, others for those who live in small or rural areas,\u201d OnQFinancial explains. \u201cNo matter your situation, there\u2019s a mortgage type that fits.\u201d<\/p>\n

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\nRelated:<\/strong> 3 Reasons to Consider NOT Paying Off Your Mortgage<\/a><\/em><\/p>\n

In the process of shopping for a mortgage, you\u2019ll want to know a little bit more about the different mortgage types that exist.<\/p>\n

Let\u2019s examine four basic categories:<\/p>\n

1. Fixed-Rate Loans<\/h3>\n

The most common and predictable type of loan is a fixed-rate loan. As the name suggests, the interest rate on this type of loan is \u201cfixed\u201d for the duration of the loan. This means it can\u2019t change, regardless of how interest rates fluctuate over time. Most fixed-rate loans come with 10-year, 15-year, and 30-year options (with interest rates stepping up accordingly).<\/p>\n

2. Adjustable-Rate Loans<\/h3>\n

Whereas fixed-rate loans stay the same until the loan is completed or refinanced, an adjustable-rate mortgage (ARM) actually changes over time. The most common types of ARM loans are 3\/1 ARM, 5\/1 ARM, and 7\/1 ARM. Depending on the type you select, this means your interest rate is set for three, five, or seven years and then adjusts annually for the remaining portion of the loan. The benefit is a lower interest rate on the front end. The negative is that you don\u2019t get the chance to lock in a good rate for very long.<\/p>\n

3. Government-Backed Loans<\/h3>\n

While most people get conventional loans\u2014such as the ones discussed in the previous two sections\u2014there are also government-backed loans. The name is pretty self-explanatory, but some of the most common types of government-backed mortgages are federal housing administration (FHA) loans<\/a> and veterans administration (VA) loans.<\/p>\n

These types of loans are nice, but they aren\u2019t as beneficial as they may appear at first glance. Sure, they feature low or non-existent down payments and have fewer requirements for qualification, but they also tend to feature high interest rates and poor terms over the life of the loan.<\/p>\n

\"habits-wealthy-people\"<\/p>\n

4. Jumbo Loans<\/h3>\n

Finally, you have jumbo loans. Also known as a nonconforming loan, a jumbo loan is a loan that doesn\u2019t meet the guidelines laid out by Freddie Mac and Fannie Mae regarding credit, income, and asset requirements. These types of loans require a lengthy qualification process, but allow certain buyers to take on much larger loans if they\u2019re able to put down a significant down payment.<\/p>\n

Related:<\/strong> 3 Reasons to Consider NOT Paying Off Your Mortgage<\/a><\/em><\/p>\n

Pursue the Options That Make Sense for You<\/h2>\n

The mortgage that makes sense for your neighbor won\u2019t be the same mortgage that works for you, and vice versa. As you evaluate different loan products, it\u2019s imperative that you think about the situational factors involved and make a choice that reflects your needs, priorities, and limitations.<\/p>\n

The bank will tell you if there are certain loans you don\u2019t qualify for; however, it\u2019s up to you to decide whether or not you\u2019ll pursue a loan that you\u2019re \u201cqualified\u201d for.<\/p>\n

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Questions? Comments?<\/em><\/p>\n

Leave them below!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

The bank will tell you if there are certain loans you don\u2019t qualify for, but it\u2019s up to you to decide whether you\u2019ll pursue a loan you\u2019re \u201cqualified\u201d for.<\/p>\n","protected":false},"author":59534,"featured_media":119905,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7402],"tags":[],"class_list":["post-95153","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-traditional-loans"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/95153","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/59534"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=95153"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/95153\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/119905"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=95153"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=95153"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=95153"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}