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Buying a home while serving in the military or as a veteran is likely one of your most daunting lifestyle decisions. The struggle lies with the simple decision of whether or not to buy a house and understanding the entire preparation process.
It’s not uncommon for first-time home buyers to feel overwhelmed. You’re learning a new skill, after all—how to purchase a new home successfully. Part of the learning process is to arm yourself with reputable guidance and information.
Don’t worry; you’re not alone in this process. The National Association of Realtors reports that half of active duty military buyers are first-time buyers, which means there are plenty of experienced real estate professionals (likely a military spouse or veteran) out there ready to lead you through the process.
But before you reach out to a real estate agent, read along to learn what it takes to buy a house. Your agent will thank you for learning the basics about the process early, and they’ll be happy to answer all of your questions.
You’ve probably spent hours online choosing paint colors, layout plans, and planning your first barbeque on your new patio! If only buying a house was this simple. Getting swept into the home buying fantasies online home shopping provides is easy. It’s practically a verified pastime in the U.S.
The truth is, depending on the health of your finances, the home buying process could easily start at least a year before your preferred purchase dates.
Watch our video, Home Buying: Preparing Your Finances
Prepare Your Finances
Begin to Build and Repair Your Credit
Loan officers base their decision to lend money on the strength of your credit. Perfect credit isn’t required, but the better your numbers look, the more attractive interest rates banks will offer and the more buying power you’ll have.
It’s a smart financial habit to look at your credit report about once a year. As long as this request is directly from the credit agency, such as obtaining your FICO (Fair Issac Corporation) score from myFICO.com or a credit report check at annualcreditreport.com, there shouldn’t be a fee, and your inquiry should not lower your credit score.
If you’re curious about your FICO and credit scores, consider these numbers and how they relate to borrowing money for a house.
- FICO scores range from 300-850. For the last several years, the national average was 717.
- The typical credit score needed for a VA loan is around 580 to 660. You’ll read more about the VA loan later.
Reviewing your accounts motivates you to organize and examine your creditworthiness. You’ll want to correct inaccurate informational mistakes (addresses, name variations) and possibly address fraud. Your credit reports also serve as a truth meter regarding whether or not you need to work on paying off harmful debts, such as credit cards.
If you hope to improve your credit score, realize that closing an account you don’t use won’t be a quick fix. A closed account will still hang around on your credit report. You could also lose points for trimming your "credit utilization ratio" or spending limit. However, if that credit card has too high of an interest rate or serves as a temptation for impulse spending, it may be worth the risk to close it out.
Also, note that even though you’re trying to build credit, opening multiple new accounts is not in your best interest just to boost your number. Each credit inquiry takes a few points off your score.
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Budget Wisely and Review Your Finances
As a renter, you’re probably considering basing your future mortgage on your current rent or current or future BAH. These are good starting points, but these numbers could change depending on your home purchase location and other personal situations.
A standard calculation to determine a housing payment is to aim for 28% to 30% of your gross income. But we all know military life rarely fits into a one-size-fits-all category.
Another option for budgeting a house payment is the 50/30/20 Budget: 50% for needs, 30% for wants, and 20% for savings and other debt. An online mortgage calculator, like the one at Veterans United, can help you predict an affordable mortgage payment.
Don’t forget there are expenses beyond your monthly mortgage payment. As noted in the budgeting tips shared in our free guide, Finding Your New Home: Househunting Tips & Mistakes to Avoid, if you’re thinking about buying a house, you’ll need to figure out how far you can stretch your paycheck each month to address:
- Utilities
- Homeowners insurance and/or private mortgage insurance
- Property taxes
- Homeowners’ Association (HOA) dues
- Landscaping/pool maintenance/pest control services
For more in-depth information about preparing your personal finances for a home purchase, read What to Know About Your Finances Before Buying a Home.
Save Your Money
Unlike a shopping trip for an everyday purchase, buying a house is a big deal. You’ll need to be financially prepared to take on a costly loan. When looking at your bank statement, think realistically about how much money you’ve saved. Plan for a healthy amount of cash in reserve to cover:
- Earnest money: A portion of your down payment that shows a seller you firmly intend to buy.
- Down payment: A percentage of the cost of the home. Having money up front can help lower your mortgage payment.
- Closing costs: A percentage of the purchase price, often up for negotiation with the seller.
- Immediate renovations: Maybe you need to repaint, or perhaps the house needs new carpet or a more expensive upgrade, such as a new HVAC system.
- Emergency fund: Although three months’ pay (or more) is recommended, having a cushion of at least one month of take-home pay in your savings will help in a pinch.
It’s important to be confident that the money you’ve saved can cover expenses that occur with a real estate transaction. A working budget serves as a guide for building the balance in your savings account.
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How to Find a Real Estate Professional
There are multiple reasons why the vast majority of military buyers use the expertise of an experienced real estate agent, but the most significant reason is that most buyers simply don’t have the time or resources to take a DIY approach to buying a house, especially in a specific circumstance like buying homes for sale by owner.
Hiring an expert removes some of the stress from an already nerve-racking situation. From the contract details to their relationships with other pros, such as mortgage lenders, renovators, and appraisers, a go-getting agent is invaluable, especially during challenging sellers markets. Also, when planning your home buying expenses, know that in most states, the sellers pay the buyers agent’s fees.
When looking for a military-friendly real estate professional, try these strategies.
- Browse through the professional real estate agents in MilitaryByOwner’s business directory.
- It’s a good idea to check the references that an agent shares with you. You’ll want to hear from other military families about their home buying experiences with this person.
- Consider a real estate agent with the Military Relocation Professional designation. This agent has undergone specialized training related to the specific challenges military families face during the buying process.
The ultimate goal is to find an experienced agent you’ll feel comfortable working with and have no trouble engaging in open and honest conversations about what you want in a property. If there’s a solid match, you can expect a friendly rapport and trust that your agent is working on your behalf to find your best housing solution.
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What to Discuss with Your Real Estate Agent
Of course, you’ll share your wish list with your agent, and they’ll use this guidance to begin the search for a home, but you’ll also want to be prepared to offer what you plan to do when the time comes to move again, a.k.a., what’s your exit strategy?
As odd as it might seem, there’s good reason to know how to manage the property when you move, even before you buy. A seasoned agent knows this and will help you understand the benefits of purchasing various homes as they fit your exit strategy needs. Not all homes fit into a potential rental home category, nor do they fit into a situation where you’ll earn money on the sale after two to three short years of living there.
Clearly Explain Your Housing Priorities
No one is more invested in your home purchase than you. Even the hardest working agents have other clients to attend to unless you work with an exclusive buyers’ agent, so you must be prepared to do some legwork, including scouting crime and safety statistics.
It's a given that most military homebuyers’ top housing priorities are the safety and security of the neighborhood. But your agent is limited in what they can tell you. They are bound by federal Fair Housing laws, which means they cannot delve into the details of a school or crime statistics in a neighborhood you are considering.
“Is this a bad neighborhood?” or “Is this a good school?” are common questions, but the answers are complex. Most agents will point to general websites like Niche.com and Community Crime Map to help you make your own decisions based on data. You can also find helpful reviews from other military families at Military Town Advisor.
Safety is important, but other quality of life factors can make or break a home search. Doing your homework early lets you quickly share your top priorities with your agent. Common topics for you to explore include:
- Commute from work and school
- Budget restrictions
- School qualities and ratings
- Crime statistics
- Work opportunities for the spouse
- House features: bedrooms, bathrooms, layout, style
Watch the following short video for Realtor Karen Hall's advice for tips on learning about a neighborhood.
Learn About Financing and the VA Loan
Remember when we discussed the health of your finances and how to increase your buying power? All of that time-consuming prep work equals the chance to obtain favorable financing options for your home purchase.
Now, it’s time to seek a ballpark figure of what you can afford. This informal process is called pre-qualification and is often casually handled online with banks or lending institutions you have a relationship with. The results of your pre-qualification inquiry reveal how much money you can invest into housing. For a fine-tuned amount, you’ll continue to the next step: applying for pre-approval for a mortgage.
The differences between pre-qualification and pre-approval are often confused. These resources help sort the differences.
A pre-approval is a much more detailed examination of your finances and credit. If you receive a pre-approval statement, you’ll have a conditional commitment for an exact loan amount. A pre-approval for a mortgage is ideal because it helps define your house hunting price range. Later, you can place an offer in a competitive market, knowing you’ll already have your financing lined up.
However, even with mortgage pre-approval, there’s no guarantee for financing. It’s simply your lender’s way of saying they will most likely approve you for a certain amount if everything checks out with your loan underwriting process.
Why Military Members Love the VA Loan
VA loans are by far the most popular loan product among active duty and veterans. For one reason, a down payment isn’t needed to be approved for the loan, and for the second reason, VA loans don’t require private mortgage insurance (PMI).
In general, VA loans have the least stringent qualifications because the federal government guarantees all private lenders’ loans. However, those lenders may have particular qualifications, such as the 640 credit score average mentioned earlier. This score is a calculated signal to the lender that implies you can make timely and complete payments.
From Understand Your VA Loan Benefit:
“The down payment requirement sets the VA loan apart from the rest. You don’t need to have a sizeable down payment. In fact, the zero down payment means you don't need one at all. Additionally, the terms of the VA loan are often more favorable than other home loans because there's no private mortgage insurance (PMI) thrown on top. Remember, the government is guaranteeing a portion of the loan. Also, a VA loan often offers a more competitive interest rate than a conventional loan.”
More Government-Backed Loans
Sometimes, other government-backed loans make your financing journey easier. Here are a couple more options.
- The FHA Loan: The Federal Housing Administration’s loan requires a down payment of as little as 3.5% of the home’s price.
- The USDA Loan: Borrowers can apply without a down payment and reduced interest rates.
Conventional Loans
Although most military members at least consider a VA loan first, there are other loan options. Some conventional loans could be better for your financial situation, especially if you have a big down payment.
Conventional loans aren’t backed by the government like the VA loan; private lenders back them. If you go this route, you'll hear about:
- Conforming mortgages: Follow guidelines set by government agencies like Fannie Mae and Freddie Mac.
- Non-conforming loans or “jumbo” loans: Used for higher-than-usual home loan amounts.
- Subprime loans: Borrowers with low credit scores can take advantage of this option.
Home Buying Process
Place an Offer
Let’s say the stars have aligned, and you’ve found a home that fits your budget and needs. With your agent at your side, make an offer, but know that it may not be initially accepted when you present your formal purchase offer to the home seller.
If the owners counter, your agent might suggest a few tactical adjustments, such as offering more money, waiving home inspection fixes, or loosening the timeline, allowing the sellers to live in their home for a few extra weeks.
Our free guide, Making an Offer & Closing On Your New Home, offers more insight on how to appeal to the seller with the perfect dollar amount and ideal closing terms.
Present an Earnest Deposit
After the seller accepts your offer, you’ll sign a real estate contract. At this point, a buyer typically deposits money, which is called an earnest deposit, into an escrow account. This good faith deposit is returned if the mortgage financing isn't approved or the home does not pass inspection.
Review Disclosures and Arrange for Inspections
Your agent will guide you through the appraisal, disclosures, and inspections that lead to final approval from your lender. During this timeframe, you’ll have the opportunity to analyze various documents, such as flood maps, geological surveys, and private property ordinances. It's possible that researching county records for outstanding home inspections will give you an idea of what you might find during your current inspection.
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Disclosure Statement
A disclosure statement is a list of flaws that could affect the home’s value. It's given to the buyer before closing so they can decide whether or not to proceed with the sale. The specifics vary by state, but if the disclosure statements aren’t accurate, you have legal options later if problems occur.
Basically, the sellers have to disclose significant problems that aren’t visible to the naked eye. Trained inspectors and real estate agents can see telltale signs, but everyday buyers won’t pick up on the clues. On the other hand, if significant problems like water damage and mold are found and fixed correctly, the seller does not have to disclose its history.
If you’re considering an “as is” property, know that the seller isn’t required to provide a disclosure statement, and they don’t intend to take on any repairs before closing. They also don’t guarantee everything is in working order, so you’re on the hook for any future repairs, large or small. However, the sellers have to meet state and federal disclosure standards, which reveal issues like lead paint.
You’ll want to proceed with caution if their disclosure includes big-ticket improvements, such as:
If these situations are revealed, you have the option to cancel the deal. Your escrow deposit would be returned, and you could walk away. However, if you’re still interested in the home, your agent can help you renegotiate the terms to have the seller resolve the outstanding issues or reduce the sales price.
Home Inspection
For reassurance that this home is a worthwhile investment, arrange for a home inspection. Don’t be fooled by outstanding curb appeal! An inspection ensures the nooks and crannies of the house are as pleasing as the exterior. You’ll likely have to share the home inspection report with the lender to process the loan.
Real estate agents typically have a couple of professionals in mind to inspect the residence. If there’s anything that doesn’t correlate with the seller’s disclosure statement, this is another opportunity for you to either cancel the deal or renegotiate the terms of the sale.
Remember, many states are “buyer beware” states, meaning it's up to you to ask questions, hire professional home inspectors, and do plenty of research before finalizing your purchase.
Watch this video for more information about what to look out for before buying your property.
Final Loan Approval
The lending institution has the final say in whether it agrees to release funds for a mortgage, but it must confirm a couple of things. These are two items that will make or break your potential home purchase:
- Your ability to make timely payments.
- The appraisal value of the property.
Over several weeks, the lender has delved into your financial profile to ensure you’ll be accountable for a home loan. Even if you have a statement of pre-approval, a lender will investigate further to protect their end of the deal. Before loaning you any sum of money, the lender wants to be sure you can comfortably cover your monthly mortgage payment.
While your finances are in review, it’s in your best interest to hold off on making any major purchases. By limiting your spending, you keep your debt-to-income ratio intact.
The lender will set up an appraisal inspection and compare the property to other houses on the market to gain a sense of what the home you are buying is worth. This will clarify if the sale price meets the value of the property. Of course, you or the seller can contest this appraisal if you feel the assessment is incorrect.
Take Inventory of the Property
A day or two before the scheduled closing date, you and your agent will take a final tour of the property. With this walkthrough, you’ll inventory what is included with the home, such as the appliances, the window treatments, or anything else you’ve defined in the contract.
From the inside to the outside, take note of the house’s overall condition and compare it to what you’ve included in your contract. If any detail has been overlooked, your agent will address those concerns with the seller’s agent. If everything around the house meets the contract terms, you can give your approval, and the home buying process moves toward closing.
Remember, this is your last chance to opt out of this purchase before you state your approval that the home meets the contract's standards.
How to Prepare for Closing
Now that you’ve done your due diligence, checked the property’s official documents with the local and state agencies, and understand precisely what you’re inheriting after the home inspection, you’ve inched closer to the official closing day. But there’s one more thing to consider if you’re buying a home or condo with a homeowners or condo owners association.
The home seller must disclose the official association documents for your review. After that, you have three days to ensure you can (or want to) meet the association’s requirements. If, for some reason, you don’t want to purchase after you’ve considered the regulations, you’re free to leave the contract.
Closing Day
Given the mobile nature of the military lifestyle, it’s good to know that your closing appointment can occur wherever you are. You may meet at the agent’s office or sign paperwork remotely. Regardless of how or where you sign, this is paperwork related to closing day.
- Photo ID: Either your driver’s license or current passport.
- Down payment: This may be a cashier's check, certified check, or wired money. Before your appointment, you’ll be told the exact amount.
- Closing costs: Usually 3 to 6% of the loan amount is paid to the lender for processing fees, such as a title search and home appraisal.
- Proof of home insurance: A receipt showing you’ve paid the home insurance policy.
- Final purchase and sales contract: Your copy of the paperwork.
When you’ve paid the lender, read through the documents, and signed more papers than you care to think of, it’s a wrap. Once the notary signs and seals the final paperwork, those precious house keys will rest in your hand for the first time. It’s time to celebrate! You are now a homeowner.
MilitaryByOwner understands your need to prepare for homeownership. We encourage you to browse our articles, posts, and ebooks. We’re happy to offer a sense of guidance and support as you find a home of your own. Download our free home buying guide below.
By Dawn M. Smith
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