Military Home Buying: What You Need to Know

For active-duty military families, the unique demands of being in the service -  including frequent PCS moves and deployments - make the decision about whether to buy a home a difficult one. For some, though, the advantages of homeownership – potential tax benefits, building equity and monthly rental income for those who choose to become a landlord – can outweigh its drawbacks. If you’ve decided to buy a home, whether you’re a millennial first-time home buyer or have previous experience, these four tips can guide you toward a satisfying military 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 qualify for a low interest rate. If your credit score is lower than the mid-600s, you will want to consider improving it 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. For more tips to improve your credit score, read Seven Credit Score Hacks to Increase Your Rating.

2. Calculate and stick to your home-buying 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 location. Reach out to an experienced real estate professional and consult with your Financial Advisor to determine an appropriate budget range. Once you’ve settled on a reasonable home-buying budget, stick to it, and only seriously consider homes that fall within or under that number. Remember that your annual taxes will be a percentage of the purchase price, so a pricier home will mean higher property taxes for as long as you own it. With a conventional home loan, your down payment will also be a percentage of your total purchase price, so a more expensive home will mean a bigger down payment.

3. Take advantage of VA mortgage loans.

Since the government provides many benefits to military families, it’s natural to wonder, “How does the military help with buying a house?” The answer is the VA Home Loan program.  Created in 1944, the program has provided military families with the opportunity to secure financing via approved lenders. VA mortgage loans offer several advantages over conventional home loans:

• No down payment is required for qualified borrowers. This means you can finance 100 percent of your new home, an option that is not available with FHA or conventional loans.
• No private mortgage insurance (PMI) is required, which will save you money on your monthly payment.
• Interest rates are typically lower.
• Typically, VA loans have more flexible qualification guidelines than conventional loans.

4. Don’t forget about closing costs.

Closing costs typically range from three to five percent of the sales price of your new home and generally fall into three categories:

• Lender costs like application and underwriting fees associated with calculating what your insurance policy premium will be
• Third party costs including title work, home appraisal and home inspection
•  Prepaid costs such as homeowners’ insurance, real estate taxes and prepaid interest

As you can see, when purchasing a home as a military family, there are lots of things to consider, including your credit score, budget, the type of loan that will best meet your needs and closing costs. For more information about buying your first home in a competitive real estate market, read Home Buying Tips for Millennials.  And if you’d like some more personalized guidance, make an appointment to talk to your Financial Advisor about planning for homeownership.