For active duty military families, the unique demands of being in the service can make buying a home challenging. While deployments and short notice or frequent PCSs make renting or military quarters attractive options for many, the advantages of home ownership – such as possible tax benefits, potential for monthly rental income, having a forever home – can outweigh its shortcomings. If you’ve decided that home ownership is right for your family, these four tips can guide you toward a satisfying home buying experience.
1. Be prepared to boost your credit score
Credit scores of 700 or better receive the most competitive home loan interest rates. Therefore, if your credit score is high, you can reasonably expect to get a low interest rate. If your credit score is lower than the mid-600s, you will want to consider improving your credit score before applying for a home loan. A few tried-and-true tactics include paying down your credit card balances, keeping those balances low, and, if you have several credit cards, eliminating the balances on most – but not all – of them. If you have a low credit score it is important to fix the personal financial behaviors and circumstances that got you there before you commit to a multi-decade obligation.
2. Embrace your budget
Before you start house hunting, you’ll need to determine your budget. This depends on several factors, including your income, monthly debt, down payment amount, and your location. Don’t forget all of the budget items you may not be explicitly paying as a renter or living in quarters—utilities, taxes, insurance, HOA fees, home repairs and upgrades, etc. Don’t forget your other financial goals and remember that your personal circumstances—like family and job—may change in the future. Once you’ve determined a reasonable home-buying budget, embrace it and only seriously consider homes that fall within or under that number. Stay on budget and learn to be content with the amount of house you can afford.
3. Consider a VA Mortgage Loan as one of several options
Created in 1944, the VA Home Loan program has provided veteran families with the opportunity to secure financing via approved lenders. VA mortgage loans offer several advantages over conventional home loans:
- 0% down for qualified borrowers although you may include a down payment
- No private mortgage insurance (PMI) is required
- Interest rates are typically lower
- Easier to qualify
A VA loan shouldn’t always be the default choice however. For example, if you have funds available to make a 20% down payment on a conventional loan, you will avoid the mandatory VA Funding Fee. Additionally, VA loans cannot be used to purchase investment properties or vacation homes, and there is a total VA loan limit which may limit your ability to use a VA loan at your next duty station if you didn’t sell before PCSing. Consider all of your loan options before simply defaulting to the VA.
4. Don’t forget about closing costs
Closing costs typically range from 3% to 5% of the sales price of your new home and fall into three general categories: lender costs (like application and underwriting fees); third party costs (like title, appraisal, and home inspection); and prepaid costs (like homeowners insurance, real estate taxes, and prepaid interest). While you can typically roll these costs into your new mortgage, you should be paying for them in cash. Paying closing costs in cash and bringing a down payment to the table, if you can, means a bigger chunk of your monthly mortgage payment will go to getting that new home paid off sooner!