Mortgage Guide – How to Consider Your Options

Mortgage Guide – How to Consider Your Options

Getting your first loan for your new home should be exciting! You’ll learn a lot about financing — and set yourself up for a new level of knowledge that will help you throughout your lifetime. 

Our mission at Generation Homes NW is to help guide and teach you about your options so you can easily decide which loan product is best for you. Our mini-guide below is your starter to get familiar with your new life as a homeowner. 

How to Choose a Mortgage: Fixed Rate or Adjustable? 

Understanding how mortgage rates and loan terms affect your long term wealth is wise for any homeowner. Choose poorly and you’ll leave a lot of money on the table for the bankers. Choose correctly and you’ll keep more cash in your pocket during the life of the loan. 

Wealth accumulation is not just about your home’s price appreciation – that will be the same whether you choose a fixed rate or an adjustable rate mortgage loan. The question is, overall, how much did you spend on the mortgage loan while you held it? That’s where extra money is made or lost. 

So which loan type should you choose? Let’s have a look at how both loans function, and then we’ll discuss how to make the right decision… 

Fixed Rates 

A fixed rate mortgage is exactly what it says. The interest rate and monthly payment you’re required to make will never change. They’re “fixed” – month after month, year after year. 

For many homeowners this provides a comfortable level of certainty knowing exactly how much they’ll have to budget for each and every month without regard to what happens in the macro economy. 

A fixed rate loan will contribute a portion of your payment to interest and a portion to your principal in order to have the loan completely paid off at the end of the term. Typically, lenders will offer a 30 or 15 year amortization periods in which to pay off your loan. 

For those interested in paying off a 30 year loan in 15-20 years, a well known strategy for that is to make a 13th payment in December each year. Not only will this slash your payoff period nearly in half, it might also be possible to write-off the extra interest in your current tax year. Ask your loan officer and tax advisor about the current laws affecting this strategy. 

Adjustable Rates 

Adjustable Rate loans are called by different names, such as “Variable” or 5/1 “ARM” (Adjustable Rate Mortgage). The essence of an adjustable is they have a built-in mechanism to, well, adjust. They are fixed for a specific period of months and then become subject to periodic adjustments. Your payment can either be reduced or increased depending on the specific terms of the loan and prevailing interest rate conditions. 

The specific terms of adjustable rate loans can vary widely. The differences lie in Periodic Adjustment Caps, Lifetime Caps, Margins, and Benchmark Indexes. This is where a professional loan officer becomes invaluable in helping explain all the details. 

The primary attraction for borrowers who take out an ARM is the lower initial rate that keep payments lower what the current fixed rate is offering – at least for the initial period before an adjustment takes place. The longer the initial period, the longer you’ll be saving money versus the fixed rate option. 

Another benefit to an adjustable rate is having the ability to pay down the loan at adjustment periods. For example, let’s say you take the monthly savings difference vs the fixed rate option and put it in a savings account. Then, when the loan adjusts, put those savings toward the principal balance. By doing this your principal balance will be reduced by the amount of those savings. Because your monthly payment is based on outstanding principal amount, your payment will drop proportionally. 

Interest-Only Loans 

A third option—usually reserved for affluent home buyers or those with irregular incomes—is an interest-only mortgage. As the name implies, this type of loan gives you the option to pay only interest for the first few years. It’s attractive to first-time homeowners because of the low payments during their lower earning years. It may also be the right choice if you expect to own the home for a relatively short time and intend to sell before the bigger monthly payments begin. 

Types of Loans

Now, let’s have a look at some current loan types to consider based on your borrowing ability and loan amount being requested.

FHA

  • Loan amounts to FHA high-balance limits per state 
  • Fixed and ARM programs 
  • Minimum 3.5% down payment. Great for first-time home buyers. 
  • Gift funds may be used toward down payment and closing costs. 
  • No prepayment penalties 
  • Credit scores to 600 (*580 or lower in some cases), flexible debt ratios. 

VA 

  • Eligible to service members and veterans with no PMI 
  • Maximum housing loan limit varies by state 
  • Fixed and ARM programs, rate & term, cash-out 
  • Zero down payment required for eligible veterans 
  • Single-family homes or Planned Unit Developments (attached/detached) 
  • 2-4 units (not allowed on 2nd homes or investment properties) 
  • Condominiums approved by VA 

Conforming 

  • Loan amounts up to $417,000 ( changes annually) on single family home (higher limits for multi units) 
  • Fixed and ARM programs 
  • Available to 97% loan-to-value, over 80% loan-to-value borrower is required to pay monthly mortgage insurance premiums 
  • 5-20% down payment options 
  • Primary, vacation, rental, and investment occupancies allowed, as well as 2nd homes 

Jumbo 

  • Fixed and ARM programs. Fixed options include 30 and 15 year. Fixed ARM options include 5, 7 and 10 year 
  • Purchase, Limited Cash Out Refinance and Technical Finance 
  • Mortgage loans to $1,500,000 (subject to change) 
  • Max debt-to-income ratio of 43% (subject to change) 

Loan Term 

You have options with the length of your loan. Every month you pay back a portion of the principal (the amount borrowed) plus the interest accrued for the month. Your lender will use an amortization formula to create a payment schedule that breaks down each payment into paying off principal and interest. 

The length, or life, of your loan, also determines how much you’ll pay each month. Fully amortizing payment refers to periodic loan payments where the loan is fully paid off by the end of its set term. If the loan is a fixed-rate loan, each fully amortizing payment is an equal dollar amount. If the loan is an adjustable-rate loan, the fully amortizing payment changes as the interest rate on the loan changes. 

Common terms are for 30 years, but many lenders will allow you to choose any amortization term below 30 years. For example: 20 year, 15 year, 10 year, etc. 

Stretching out payments over more years (up to 30) will generally result in lower monthly payments. The longer you take to pay off your mortgage, the higher the overall purchase cost for your home will be because you’ll be paying interest for a longer period. 

How Mortgage Interest Rates Are Determined 

Mortgage interest rates gyrate depending on larger economic factors and investment activity. The secondary market plays a role. Fannie Mae and Freddie Mac bundle mortgage loans and sell them to investors looking to make a profit. Whatever interest rate those investors are willing to buy the mortgage-backed securities for determines what rates lenders can set on their loans. 

Mortgage rates typically decrease when… 

  • The stock market falters 
  • There are dips or insecurities in foreign markets 
  • Inflation slows 
  • Unemployment increases or jobs decrease 

Mortgage rates typically rise when… 

  • The stock market is strong 
  • Foreign markets are strong and stable 
  • Inflation is up 
  • Unemployment is low and jobs are increasing 

Interest rate movements is a tricky business. Typically, if the economy, stock market, and foreign markets are strong, investors require higher interest rates to make back their money. This causes lenders to raise their rates. Bond investment activity can also impact mortgage rates. 

Calculate Your Mortgage Payment 

Use Bankrates mortgage calculator to estimate your monthly mortgage payment. You can input a different home price, down payment, loan term and interest rate to see how your monthly payment changes. 

These estimates are broken down by principal and interest, property taxes and homeowners insurance. 

How Long Will You Stay? 

One of the first decisions a borrower should make is estimating how long they will be staying in the home before they move on. We can’t predict the future of course, but some reasonable assumptions can be made if the right questions are asked? 

  • How many years do your children have left to complete high school? 
  • Are you just starting out and plan to build a family? 
  • Do you have a historical pattern of moving – what is it? 
  • How certain are you to stay put for the next 15 plus years? 
  • Will your property eventually become a rental? 
  • Are you a good manager of money? 

Next, ask what sort of risk tolerance you have? Fixed rates require no worrying, no risk to external upheavals in the interest rate market. Adjustable rates have the risk of going up to the maximum Cap Rates, eventually clawing back the initial years savings. 

Answering these questions will help you determine the length of loan terms to consider. 

Final Thought 

Understanding how mortgage rates and loan terms affect your long term wealth is wise for any homeowner. An FHA may be your perfect solution if you’re a first-time buyer, or a Jumbo may be appropriate if you’re purchasing a higher dollar property. 

Be sure to find a competent professional to help you consider all the options before signing on the dotted line. 

Be Smart. Choose Right. 

This article was prepared by Generation Homes NW, an on your lot homebuilder who has been serving homeowners in the Pacific Northwest for more than 30 years. If you would like to discuss the opportunities we currently have for you, please contact us today

Open Floor Plan Pros & Cons

Open Floor Plan Pros & Cons

Purchasing a new home comes with so many (delightful!) decisions. Once you’ve selected a location, you’re soon comparing floor plans and layouts – and a choice between open-concept or closed designs. If you’re not sure what will be the best fit for your family, it’s helpful to understand what each can offer. Other than the obvious differences, each type will have features that may or may not work best with your lifestyle. We’ll take a look at these elements and highlight their pros and cons. You may find that an open floor plan is perfect for you!

Advantages of Open Floor Plans

Open floor plans may bring to mind one large space, like a city loft, but they can also include popular concepts like Great Rooms. Think versatility and multiple uses, and you’ve got the idea. Some of the benefits of the lack of walls? 

1. An abundance of natural light 

With no walls to divide up the space and block the light from windows, open floor plans let the sunlight in. The result is bright rooms with direct views of the outdoors, an airy feel, and room for houseplants.

2. Easy entertaining

The best parties and gatherings are able to take advantage of the easy traffic flow and flexible layout of an open space. Open-concept plans keep your guests from being crowded into corners and maintain the spacious feel of your home. As a bonus, many open plans are anchored by the kitchen area, which makes hosting and interacting with guests much easier.

3. More space for your family

Without walls to divide up the square footage, an open-concept floor plan not only feels larger- it allows for flexibility and the ability to create the maximum amount of floor space. It’s easy to work with oversized furniture pieces, create room to play, or to create separate interest areas. 

4. Higher resale value

Open floor plans have become increasingly popular, and their resale value remains strong. When it’s time to sell, the desirability of this type of plan is a major selling point for potential buyers, who are looking for the same flexibility and roominess that attracted you. 

Disadvantages of Open Floor Plans

Open-concept floor plans aren’t perfect for every homeowner. It’s good to be honest about your needs for your new home and to be aware of what the more traditional layout of a  closed floor plan can offer.

1. Concealing clutter

If you need to keep the clutter that can accompany a busy lifestyle contained to one area, separate rooms give the option of tucking it away behind closed doors. If you need an area for activities that have a lot of materials, it could be better to reserve one room that can be shut off from the rest of the house.

2. Missing your familiar home décor

More rooms mean more walls – and more display space for your framed art and photos. If you’re accustomed to decorating with an abundance of vertical display space, you may find the lack of walls to be limiting.

3. Load-bearing walls

Closed floor plans that use load-bearing walls in their construction provide some positive benefits, such as better noise reduction between rooms. They also provide support for two-story home layouts.

4. Less privacy

Without walls and doors to close areas off, block views, and contain sound, an open-concept floor plan can lack the privacy some families need. If you spend a lot of time together, individual rooms can be desirable.

Big Picture Takeaways

Buying a new home is the ideal way to ensure that your home’s layout is optimized for your family’s activities, and needs. When you’re beginning your exciting journey, taking the time to really think about your lifestyle can help you choose a floor plan that makes living in your new space a joy. Open-concept plans with a versatile great room are often the way to combine all the best qualities of closed and open design concepts. With plenty of space, luminous rooms, a layout that’s a natural for entertaining, and superior resale value, they’re popular for a reason.

Have Any More Questions? Get In Touch

Contact us today to find out how Generation Homes can help you get the home of your dreams. Come experience our model home located in the Seven Wells community and feel the difference.

New Home Decorating Guide

New Home Decorating Guide

New homes offer an enticing blank slate, room to implement all those ideas you’ve been saving on your Pinterest boards – and, if we’re being honest, they can be just a little terrifying.

There’s a lot of blank wall space.

There are also hundreds of possible furniture arrangements in just the living room alone – or at least it feels like it. You might be looking at buying new furniture, trying out a new color scheme, or downsizing.

Here’s the best way to get started with your decorating.

What To Keep In Mind When Decorating Your New Home

1. Make friends with your measuring tape

Building a new home on your property gives you an opportunity to gather all your measurements and information in one place.

Whether you’re getting most of them from blueprints, or do it yourself, take the time to put down all those dimensions that you’ll be working with in the future.

Ceiling heights, window sizes, wall measurements, counter lengths and fireplace dimensions – all of these can help you decide on everything from curtains to art to furniture.

2. Gather up your inspirations

Clear off the dining table, plug in the laptop, and start pulling out all those brochures, fabric samples, color swatches, and everything that you’ve been stashing away.

Open up your bookmarks on your computer browser, lay out those magazine articles, and get ready to start mixing and matching. Or matching and matching. Either way, it’s time to narrow down your choices.

3. Hey, what are you looking at?

It’s Design 101: Find the focal point for each room. With some spaces, it’s pre-determined by the architecture.

A large window, a fireplace, or an accent wall will be what draws your attention as soon as you walk in the door. For a layout that pleases the eye, use this focal point as a visual anchor to work from.

4. Work from big to small

Figure out your key pieces, and let them dictate what comes next. Once you get your focal points established and your main furniture pieces in place, things will start to come together.

Even if you’re starting with a whole new set of furniture, your new home will still look remarkably pulled together while you’re still adding those personal touches.

Let your larger pieces introduce your style, and keep building from there.

5. You don’t have to purchase everything new

As a matter of fact, blending old and new furniture pieces and decor pieces will keep any room feeling more comfortable and attractive.

The best room updates will have an artful combination of old and new. This also provides a chance to change things up a little. If you’ve gone in a different style direction in your bedroom, you may find that a piece that has been assigned to that room forever might just be the perfect accent for your new study.

Tips For Designing Each Room

Once you’ve sat down with all your style inspirations, look for patterns.You’ll be able to use your choices for any room.

Helpful questions to ask might be:

  • Are you seeing a lot of cool tones in the color schemes?
  • Are most of the surfaces sleek, or have you been drawn to texture?
  • Does almost every room design you’ve saved have a particular color?
  • Is there a style of furniture that keeps showing up?

Make a list of the things that stand out.

Bedroom

Your bed is a natural focal point, and the trend is towards headboards that make a statement. The entire idea of what should go above the bed has changed.

New trends suggest that let your bedroom style go supersized!  Highlight the wall space with a bold piece of art or an accent wall that utilizes wallpaper.

If you do use a headboard, go tall and don’t be afraid of colorful upholstery.

Kitchen

Don’t forget to hang art in your kitchen area. It’s easy to get caught up in tucking everything away, or just keeping a few appliances out on the countertops, but the right piece of art can really pop in this underlooked space.

When you’ve worked with a trusted home builder, you know that they’ve gone the extra mile to make sure that your kitchen work zone works effectively and that the design is ready for living.

Go ahead and honor the new space by featuring art that makes you feel happy.

Living Room

Don’t waste a good focal point! It can set the tone for the whole room.

Think back to your style inspirations. Use one of those style points that you identified, and incorporate it here. If it’s a color, use it in a big way.

For example, if your focal point is a big window, use it in the curtain fabric. If you are drawn to natural, rustic textures, think about using a fabric like burlap for your window coverings.

Bathroom

Use real furniture in your bathroom decor – it’s an amazing look. Pull in some small end tables or use a wooden bench by the tub to hold towels.

Bathrooms are larger and more luxurious than ever, and you don’t have to limit yourself to just built-in items and lightweight pieces. Let the decor and the feeling match the rest of your house for a modern feel.

Dining Room

A good rug is one of the best ways to keep a dining room looking interesting when it’s not in use. Don’t try to blend in – go with an interesting pattern or strong colors.

Dining room tables tend to present a lot of blank space, and with the table being a focal point for the room, it looks better to play off the shape with an area rug that adds some visual weight.

Work from its pattern and color when you choose other decor items for the room, and the whole look will come off as something much more polished than just an empty tabletop.

Interior design trends for your inspiration

All about the blues

Blues are strong in the color forecasts – and the shades are strong and intense. Pale and washed out tints are out – the richness of cobalt and royal are being used in  everything from tile accents to pendant lamps. The new shades feel natural, and have more than a hint of bohemian charm about them.

Photo via www.styleathome.com

Art Deco Returns

The best things always come back into style, and Art Deco is one of the freshest trends. The latest take on the look is updated, and has something for everyone. It’s a little less sweet, and a lot more sophisticated. The sharpness of the geometric shapes is still there, and so are the color contrasts – but the shades are now warmer tones of coral, contrasted with deep greens, dark wine reds, and midnight blue.

Photo: by Björn Wallander – Source

Handcrafted Accents

A big trend in 2019 is the continued use of handcrafted accents with a strong texture. Think fabrics like burlap and raffia, handwoven rugs, and unique furniture pieces that aren’t afraid to show off their artisanal quirks.

On walls and floors, expect to see a renewed interest in finishes that look hand-applied and aren’t afraid to be bright. Layering now happens with rugs – don’t be afraid to mix and match your patterns while you’re at it. Hand-dyed and finished fabrics in interesting prints, and wallcovering that looks hand-stamped are all part of the look. It’s fun, it’s bright, and it’s eclectic.

Photo via HarpersBAZAAR.com

Texture Mixing

It’s chic to mix up your textures – contrasting the sleekness of stainless steel and marble with the earthiness of pottery and rough wood. This can be used throughout the home – loosely woven curtains with polished floors, barnwood accents in the kitchen, and grasscloth wallpaper in the entry hall, contrasting with glossy wood furniture. It’s an easy way to mix and match, and can warm up any room.

Photo via tilebar.com

Real plants

They’re healthy, they’re gorgeous, and they have thousands of Instagram accounts dedicated to them. Urban jungles are the latest thing – and they’re easy to love. Even those with the brownest of thumbs can handle a kitchen window herb garden, or some tough succulents. There’s something special about watching a plant grow up in your new home – try to put one in every room.

Photo via Jungalow.com