Calculating a Homebuying Budget for an Active Duty Military Family
There are unique demands as an active duty military service member, including Permanent Change of Station and deployments.
That can make the decision about whether to own a home a difficult one. However, for some active duty military families, the advantages of buying a home—tax benefits, building equity, and monthly rental income (if they choose to become a landlord)—can outweigh the drawbacks.
Here are 5 tips to consider before you take the plunge and buy a home.
Boost Your Credit Score
Want to get the best interest rate possible for your new home loan? Make sure your credit score is 700 or better.
Lending institutions look very closely at your credit score because it is considered a reflection of how financially responsible you are.
If your credit score is lower than the mid-600s, you’ll want to clean it up before buying a home.
There’s no point in paying more for your home than you have to. Take some time and improve your credit score.
Your wallet will thank you.
Calculate Your Homebuying Budget and Stick With It!
If your credit score is good, then the next step is to calculate a homebuying budget. You’ll want to look at your income, monthly debt, down payment amount, if any, and where you want to buy a home.
The Basic Allowance for Housing (BAH) is one factor to consider. It is intended to cover 95% of rental costs for suitable housing for military families.
You’ll want to connect with an experienced realtor and consult with a financial advisor to help you determine your homebuying budget.
Use this Basic Allowance for Housing calculator to get started. Once you’ve determined your budget, stick with it!
Only consider homes in your price range. Remember, this may not be your dream home. So, weigh must-haves with nice-to have.
You’ll be looking at a lot of houses. Make a checklist and carry it with you as you tour each home.
Chances are you will find amenities you did not even consider as well as features you don’t want. Write it all down!
The Basic Allowance for Housing (BAH) is one factor to consider. It is intended to cover 95% of rental costs for suitable housing for military families.
You’ll want to connect with an experienced realtor and consult with a financial advisor to help you determine your homebuying budget.
Use this Basic Allowance for Housing calculator to get started. Once you’ve determined your budget, stick with it!
Only consider homes in your price range. Remember, this may not be your dream home. So, weigh must-haves with nice-to have.
You’ll be looking at a lot of houses. Make a checklist and carry it with you as you tour each home.
Chances are you will find amenities you did not even consider as well as features you don’t want. Write it all down!
Apply for a VA Mortgage Loan
The VA home loan program, created in 1944, provides military families a way to secure financing through its approved lenders.
It has several advantages over conventional mortgage loans.
It has several advantages over conventional mortgage loans.
- No downpayment is required. You can finance 100% of your home loan.
- No private mortgage insurance. This will save you on your monthly payment.
- Interest rates are typically .5%-1% lower than conventional loans.
- Greater flexibility because you can qualify even with a lower credit score or more debt
- VA loan requirements requires an honorable discharge and minimum active duty service requirements, depending upon when you served.
- VA loans are assumable. If you are a buyer and find another service member with a VA loan who wants to sell their home, you can assume their loan at their current home loan rate. This can be helpful when the seller’s mortgage interest rate is lower than current market rates.
Get Mortgage Pre-Approval
Besides the terms of a real estate contract, one of the best ways to stand out to a seller is to have loan pre-approval.
Mortgage pre-approval tells the seller that your lender agrees you can afford the house in your price range. The process is involved, and you will need to answer a lot of questions and provide extensive documentation.
However, pre-approval allows you to make an offer on a home quickly with the help of your realtor.
One caveat. Pre-approval is only good for 90-120 days. So, get pre-approval right before you start house hunting.
You should know there is a difference between being pre-qualified and pre-approved. Pre-qualification doesn’t dive as deeply into your finances. Therefore, it doesn’t carry the same weight as mortgage pre-approval.
To demonstrate that you are a serious buyer, get pre-approved!
Mortgage pre-approval tells the seller that your lender agrees you can afford the house in your price range. The process is involved, and you will need to answer a lot of questions and provide extensive documentation.
However, pre-approval allows you to make an offer on a home quickly with the help of your realtor.
One caveat. Pre-approval is only good for 90-120 days. So, get pre-approval right before you start house hunting.
You should know there is a difference between being pre-qualified and pre-approved. Pre-qualification doesn’t dive as deeply into your finances. Therefore, it doesn’t carry the same weight as mortgage pre-approval.
To demonstrate that you are a serious buyer, get pre-approved!
Closing Costs and Other Related Fees
Not having a down payment for a VA loan is helpful, but you will have to have money for closing costs and other related real estate fees.
The range is typically 3%-5% of the sale of the home you want to purchase.
Here’s a quick list of the fees you can expect at closing.
Additionally, we always recommend buyers make the one-time purchase of homeowner’s title insurance.
This policy provides peace of mind for as long as you own your home, protecting you from many common legal issues that can occur when transferring title from one person to the next.
It’s a lot of hoops to jump through but it’s well worth the effort! Owning a home is the American dream, one that pays you back as the years progress.
Ready to close on your new home? Turn to the pros at Lilly Title & Settlement. We’re a woman-owned business obsessed with settlement legal details so you can close quickly!
The range is typically 3%-5% of the sale of the home you want to purchase.
Here’s a quick list of the fees you can expect at closing.
- Lender costs like lender title insurance and underwriting fees associated with calculating your insurance policy premium
- Title work, home appraisal, home inspection fees
- Homeowner’s insurance, prepaid interest, real estate taxes
- VA funding fee. This is a one-time fee that you may be required to pay on your VA loan. Usually, this is included with your mortgage balance and is not an out-of-pocket expense.
Additionally, we always recommend buyers make the one-time purchase of homeowner’s title insurance.
This policy provides peace of mind for as long as you own your home, protecting you from many common legal issues that can occur when transferring title from one person to the next.
It’s a lot of hoops to jump through but it’s well worth the effort! Owning a home is the American dream, one that pays you back as the years progress.
Ready to close on your new home? Turn to the pros at Lilly Title & Settlement. We’re a woman-owned business obsessed with settlement legal details so you can close quickly!
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