Recently, I’ve had several discussions with clients who are in the middle of a PCS (permanent change of station) or preparing for one. No tears so far, but lots of frustration every time the Federal Reserve raises the benchmark interest rate. Purchasing a home in the current seller’s market presents unique challenges for military families. In this post, I will explore key factors to consider when buying a home, empowering you to make well-informed choices and navigate the complexities of the market.
First of all, should you buy a home? No, really. Should you? We’ve all heard of that family that was able to sell their home in 3 years and make $100,000! Amazing! But that is 100% not the most likely outcome. Being well-informed about the implications of this property turning into a rental is important, as there is a high probability of it becoming one. I recommend you check out this MFAA blog post if you’re on the fence. Go on, I’ll wait. Welcome back! Now that you’ve familiarized yourself with some of the nuances of military real estate investing, you are well-informed and ready to proceed. Huzzah!
You’re moving soon. Where do you start?
- Check Your Credit: There are several ways to check your credit score that won’t result in a hard inquiry on your credit. You’ll want to know where you stand before you apply for a loan. I’m a big fan of using annualcreditreport.com, the official website authorized by the Federal Trade Commission, to request your credit reports. Most credit card companies provide their clients with the option to access their credit score at no cost, without it causing a hard inquiry on their credit report.
Did you know that mortgage lenders use a different scoring model when you apply for a loan? The score you receive from your credit card company will probably be different/lower than what your lenders pulls. Ah lovely, another edition of the points are made up and the rules don’t matter.
- Do the Math: The full cost of owning a home doesn’t just include the amount that the lender is going to show you. The lender will typically include the principal, interest, property taxes and insurance in their quote. Amounts that they don’t include but that could make a significant difference for you as the buyer include the monthly maintenance, monthly/annual homeowners association fees (up to $1,500/month in some areas!) and improvements you need to make to the home before you move in (that 70s green shag carpet has got to go).
The lender will also show you the closing costs but those are typically not included in your monthly mortgage amount. Closing costs are fees and expenses associated with finalizing the purchase of a property. They usually include charges for services such as appraisals, title searches, loan origination fees, attorney fees, insurance premiums, and government taxes or recording fees. You’ll need to decide if you’re going to add these fees to your home loan or if you’re going to pay for them at closing. I tried to show up at our last closing with a stack of cash like Scrooge McDuck, but my husband said no. So boring.
- Explore Your Mortgage Options and Find a Lender: If you’ve already engaged a real estate agent, they likely have a list of reliable lenders they can recommend to you. If you are searching for a lender independently, begin by considering your bank or credit union, as well as local mortgage brokers in the area where you plan to move. Additionally, fellow military members can also serve as a valuable resource for lender recommendations. Online lenders can also be a good option but not all of them are approved to do VA loans. If you’re going to use a loan from the Department of Veterans Affairs (VA loan), then you must make sure the lender is VA approved. Once you’ve made a list of lenders, explore their websites, read reviews, and gather information about their loan products, interest rates, fees, and customer satisfaction ratings.
- Get Pre-Qualified or Pre-Approved: What is the difference between getting pre-qualified or getting pre-approved? Think of being pre-qualified like your cousin telling you they can sing “Somewhere Over the Rainbow” just like Judy Garland. But getting pre-approved is having your cousin sing the song and record it to prove that they can do it. (I like to take any opportunity I can to use a theater reference. You’re welcome.)
The lender will likely pre-qualify you quickly (with a phone call or an online form) and this is based on the overall financial picture you share with the lender. To get pre-approved, a borrower will submit an official application along with necessary documentation. The lender will then evaluate your financial situation and history to determine how much mortgage you can reasonably afford. Which one should you do? It depends. Pre-qualification doesn’t generally involve anyone pulling your credit but the advantage of being pre-approved for a mortgage can vary based on your timeline and the specific market you are entering. In a highly competitive market, having pre-approval could provide a significant edge.
- Work with a Knowledgeable Real Estate Agent: This is usually where people start but it’s ok if it’s at the bottom of your to-do list. Your agent will be able to do a better job of finding an appropriate home for you if you have a realistic range in mind and you will be less tempted to buy a home that you can’t afford. As financial planners, our interactions with real estate agents are frequent, and I’ve observed that the agents who possess in-depth knowledge of the area and maintain strong connections with fellow agents tend to achieve the highest levels of success. When searching for a real estate agent, don’t hesitate to interview multiple agents. It’s also beneficial to ask for recommendations from friends and colleagues who have had positive experiences with agents.
Additional Tips for Military Families Buying a Home
- Select a Home in Good School Zone: You may not have children of your own, but it’s important to consider that your future renters will likely have families that will be prioritizing rentals in reputable school districts.
- Consider Proximity to Military Bases: If you have a home that’s close to a military base, you’ll have a better chance of the home renting quickly.
- Select a Well-Maintained Property: By prioritizing homes in excellent condition, you increase the likelihood of finding a property that not only saves you money but also requires minimal repairs.
- Don’t Skip the Home Inspection! Just Don’t. When we bought our home, our realtor knew the seller would want an offer without a home inspection. So, we brought a home inspector with us to the open house. It was a little bit of a Bugs Bunny situation and the seller’s agent was ok with it but that was mega stressful for this rule follower. The market has calmed down some since then so you should be able to arrange for a professional home inspection as part of the offer you make on the home. Home inspections ensure any potential issues are identified and addressed before committing to the property.
Remember to prioritize your long-term goals and maintain flexibility and patience throughout the process. Feeling overwhelmed by all the information on the Internet? Reach out to one of our planners to help you navigate the process and make your next move a smooth transition.