Military Appreciation Month: Buying While Serving

If you’re an active-duty service member, purchasing a new home this year might seem like a distant dream. Whether you’ve bought a home before or not, you might be thinking it’s better to wait until you retire to make that huge commitment. We’re here to tell you that’s not always the case.

Homebuying is stressful for anyone, but the added pressure of owning a home when your geographic location can change is a real complication for active service members. But you should know, buying a home while serving is neither impossible nor irresponsible. It’s the opposite, in fact! It’s a good investment.

Jumping from apartment to apartment while you’re not deployed doesn’t sound appealing, right? If not, here’s a list of some financial benefits of buying a home while you’re still on duty.

Understanding the VA Loan

VA loans are popular loan options for veterans, active-duty service members, and some surviving spouses of eligible veterans (certain restrictions may apply). VA loans are backed by the Department of Veterans Affairs, and they require no down payment, no private mortgage insurance, and offer flexibility with your credit score. For more information on the the loan type and how you might finance one, follow that link to another article from the Knowledge Center.

According to Military.com, the Department of Veterans Affairs has guaranteed more than 20 million loans since 1944. While they remain sought-after to this day, it should be known that they don’t cover co-ops or vacant land.

Expert Tip

You can take out a VA construction loan for a property that will fill vacant land.

The home financed must be intended for primary residence, so that means the loan can’t be for a vacation or investment property.

The Funding Fee

On Jan. 1, 2020, the VA home loan program removed its loan limits for veterans with their full entitlement. This means qualified veterans can now borrow as much as they can afford without needing to make a down payment. The program also adjusted the funding fee structure. The VA funding feeA one-time loan fee put toward veteran-focused programs.VA funding feeA one-time loan fee put toward veteran-focused programs. VA structure currently stands at:

• First-time use and less than 5% down: 2.15%

• Subsequent use and less than 5% down: 3.3%

• First and subsequent use with 5% or more down: 1.5%

• First and subsequent use with 10% or more down: 1.25%

With all that said, the VA loan does have lucrative benefits for eligible service members.

No Pre-Payment Penalties

No pre-payment penalty means you’re eligible to make any extra payments to your loan without fear of financial punishment. That’s not always the case for other loan options out there. Ultimately, you will save money in interest by making the stress-free pre-payments whenever you can.

No Monthly Mortgage Insurance Fees

For some other loan programs, you’re required to make a 20% down payment on a new mortgage to avoid paying private mortgage insurance (PMI)An insurance policy that protects the lender in case you default on your loan. Mortgage insurance is required for FHA loans and for Conventional loans when you put down less than 20%.private mortgage insurance (PMI)An insurance policy that protects the lender in case you default on your loan. Mortgage insurance is required for FHA loans and for Conventional loans when you put down less than 20%.. VA loans don’t require a down payment, and they don’t tack on the usual PMI in place of the 20% down payment. Instead, the funding fee, which a third of borrowers aren’t required to pay based on the loan’s guidelines, substitutes for PMI.

Renting Vs. Owning

In most cases, having a mortgage will likely save you more money over time than renting. Plus, homeowners get tax benefits renters do not receive. Homeowners can deduct things like mortgage interest and property taxes from their taxes.

But remember, homeowning brings a whole slew of extra expenditures to maintain the property. Those same expenditures could be covered by renting, but it’s no guarantee. Lawn care and repair costs are just a few examples of costs that will come directly out of any homeowner’s pocket. However, there’s a lot more space and freedom granted once you move into a space you can call your own.

Know What You Want

No matter what the case is, make sure you’re in a good place financially and secure in your future goals before jumping into the housing market. Get to know the current market and up-to-date mortgage interest rates. You also might want to ask yourself a few key questions before deciding to buy or apply for a VA loan. Some examples might be:

• How far is the property from your base?

• Will you live in the home after you retire?

• Is it enough space for your current or planned family?

Only you know the answers to these questions, and there are other things to consider before applying for a loan. Still, being financially informed now means you’ll have more success when it’s finally time to speak with a Mortgage Banker.