Purchasing a home can seem like a daunting task, especially for a growing family, and it may seem like no home fits both your current and future needs entirely. It’s important to keep in mind that financing options can be adjusted as your lifestyle changes, and homes can be changed through renovations or additions to become the right fit for you. All it takes is a little imagination and a knowledgeable lender to evolve any home into your dream home. Buy a home today that your family can grow with! Here’s a few tips to help with the process.
Fixed Rate vs Adjustable-Rate Loans:
A fixed rate loan is one with an unchanging, locked, interest rate. The interest rate will stay the same during the entire loan life. Many financing providers like GreenStone offer fixed rate loans from 5 to 30 years. For example, you can evaluate your life needs and plans and opt for a 5, 10, 15, 20, 25, or 30 year loan.
An adjustable-rate mortgage (commonly referred to as an ARM) is typically split into two cycles, with the rate adjusting between the two. A common example GreenStone offers is an adjustable-rate mortgage 5/25 year loan or 7/23 year loan. For a 5/25 loan the interest rate will be fixed for the first 5 years then adjusts to the current rate at that time for the next 25 years.
You may be wondering which is best for me? Well, an adjustable-rate mortgage can be beneficial for people who are planning on a short-term purchase, where they anticipate selling the home within the first 5 or so years. It can also be beneficial for those who are planning on remodeling, which would require a financing change anyway early in the loan. In today’s rising rate environment, some may choose this option in hopes of rates dropping during the first timeframe. If any of those are familiar to your ideas, it might be an option to discuss with your lender as there are several details related to the loans that you’ll want to consider when making the choice.
There is no automatic loan that is perfect for everyone. Each case is unique, and we work hard to help find the perfect fit for you! Whether you are in search of 50 acres of land with a farmhouse or a single-family home on one acre in the country, we’re here to help!
Construction Loan vs Equity Loan
Equity loans allow you to borrow money using the equity in your home as collateral. For example, if you have a property that is worth $200,00 but you only owe $50,000 on your loan, you can potentially borrow up to $150,000 to use for home remodeling and renovations because of the current equity. This loan is great for those who have owned their home for a longer period and are needing an additions for their growing family!
In a situation where you might not have as much equity in your home, but the end value of your renovation is higher, you can use the end value as equity. Using a similar example to the one above, you have a $200,000 home you currently owe $150,000, meaning you only have $50,000 in equity. However, a construction loan allows the property to be revalued to what it’s going to be worth after remodel is finished. For example, based on the blueprints and new renovations planned, the home will be worth $275,000. Now you can potentially borrow up to $125,000 in equity.
Financial situations change as you grow- salaries increase, families grow, and needs change. A first-time home buyer may start with 30-year loan because the monthly payments are lower. Thirty-year loans often have slightly higher interest rates compared to the shorter loan types, and sometimes life changes can allow you to pay off the loan more quickly than originally expected. Because of this, it can be advantageous to refinance an existing loan to a shorter loan.
Refinancing your thirty-year loan to a shorter twenty- or fifteen-year loan for example, could raise the monthly principal payments, but the interest rate could be lower. Particularly if interest rates have dropped since the time of your loan, the interest difference could offset the increased principal payment amount, meaning a similar monthly payment for less months. For those with GreenStone loans, we offer an internal refinancing process that is quick and easy! Current loan holders can change their loan with no appraisal or inspection.
Always remember to start with what you can afford because nothing is set in stone. Changes can always be made to fit your unique situation!
In terms of refinancing your interest rate, always keep an eye on the market! We understand the current rates are on the rise, and it’s not currently advantageous to refinance. But it’s always good to understand how the interest rate is moving and how the market is flowing. You can always call your loan officer and ask questions about the current rate or status of the market if you’re unsure.
When selecting your mortgage or type of loan there are a few other things to remember. First, take a step back and consider all your needs for the present and future. For example, are you trying to build a home within the year or five years down the road? Are you planning on buying a fixer-upper to turn into your dream home? Or are you already a homeowner who is deciding between buying new or adding on? Your financial services officer is the expert that will help guide you through some of the financial options during this process and having the complete picture of your ideas and plans is important to their success in helping identify the best options for you to consider.
You’re not alone in this process! Financial services officers are experts in these topics and can help you maneuver the grey areas. Paralysis from over-analysis is common, so before you worry about the next step, call us!