To rent or to buy a house?—That is the question! Due to the frequent moving requirements for most military members, the decision to become a homeowner requires great consideration of finances and other logistics. Homeownership is a great opportunity to invest your money rather than continuing to pay for something you’ll never own.
With the proper research and a solid plan in place, homeownership can be highly beneficial for service members. If you’re thinking about buying a home, whether it be the first time or the sixth time, start the process by considering these questions to ask before buying a house.
1. Am I ready to buy a home?
Financial readiness is one of the key factors in deciding whether it’s time to buy a home instead of renting. In addition to paying the mortgage each month, there are other expenses related to homeownership you need to consider. While assessing your finances, consider these key components.
Questions to Ask Before Buying a House
- Do you have enough money for a down payment, closing costs and any additional out-of-pocket expenses at the time of closing?
- Do you have enough savings to handle unexpected expenses, such as replacing a big appliance or the HVAC system if it goes out?
- Does your monthly budget have room for mortgage payments with the added taxes, private mortgage insurance (PMI), homeowners insurance, utilities and other incidentals?
- Are you able to afford a home in addition to non-housing expenses, such as food, lawn care, car expenses, etc.?
- How much debt do you currently have? Your personal debt-to-income (DTI) ratio will be an important factor that lenders will consider when evaluating your mortgage application.
Although it isn’t the most enjoyable part of purchasing a home, taking a hard look at your finances before making any big decisions is essential. It will not only help you decide whether to rent or to buy, but it will allow you to purchase a home with confidence if you decide to go that route.
2. Is my credit score good enough to buy a house?
Before you start contacting lenders for a pre-qualification, you should know your credit score. Credit scores range from 100-850, with an 850 credit score being considered pristine. Your credit score is a crucial factor that lenders use to assess your creditworthiness, and they will need to check your credit to responsibly give you a pre-approval.
Be cautious when shopping lenders though. Most times when your credit is pulled, it reduces your score. However, your credit score is designed to account for the fact that individuals may shop around for the best loan terms. When you’re rate shopping for a mortgage, multiple inquiries within a specific timeframe (often between 14-30 days, depending on the credit scoring model) are typically treated as a single inquiry.
Once a year, you can request a free credit report from AnnualCreditReport.com. This includes a report from each of the three primary reporting agencies – Experian, Equifax and TransUnion. Select the option to receive reports from all three agencies at once since you don’t know which agency your loan provider will use.
Expert Tip: If you find errors on your credit report, take the time to get them corrected. Even if your credit is otherwise stellar, inaccuracies can hurt your credit. A reliable lender can assist in their removal and expedite a Rapid Rescore process to swiftly rectify your credit score.
3. What type of home should I buy?
Before you call up your real estate agent, take some time to think about what type of home you want to buy. Are you set on a single-family home? Or are you willing to consider an apartment, condo or duplex?
Perhaps you want to purchase an entire multi-family building and live in one unit while renting out the rest. Pinning down your preferences and needs will help you relay to your real estate agent exactly what they should keep an eye out for.
More Like This: Still considering all of your living options? Here’s everything you need to think about when deciding if you should live off- or on-base.
4. How much mortgage can I afford?
As a general rule of thumb, you don’t want to spend more than 40% of your monthly income on housing, including mortgage, taxes, insurance and maintenance. If these expenses are projected to be above 40%, then you may want to save up, pay down bills and work towards homeownership in the future.
How much mortgage you can afford will be directly impacted by your income, existing debts, credit score and current interest rates. The only legitimate way to figure out how much you can spend each month on a mortgage is to check with a reputable lender.
In addition to helping you determine how much mortgage you can afford, a lender can assist you with choosing a lending type that works well with your situation. Whether you decide to use a VA home loan or a different lending type, speaking to a lender at a military mortgage company is a great first step.
The VA Home Loan
One of the best benefits of serving in the military is the VA Home Loan. The VA loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs but issued by qualified lenders, such as banks and mortgage companies. For active duty or Veterans who qualify, the VA loan makes it easier for you to purchase or refinance a home.
To get started, you’ll need to verify your eligibility for a VA loan by obtaining a Certificate of Eligibility. Once you have that, you’ll select a VA-approved lender. We recommend taking the time to select someone who is very familiar with VA loans.
More Like This: Learn more about VA home loans with our Military Homebuyer’s Guide!
5. How much house can I buy?
In the ever-evolving landscape of real estate, the prices of homes tend to follow an upward trajectory as the years pass by. Only once you determine your purchasing power and receive a pre-qualification or pre-approval will you be able to determine how much house you can buy.
Once your lender pre-qualifies you for a certain amount, you’ll be able to relay that information to your real estate agent. Together, you can dive into the current housing market and see what is up for sale within your budget.
Of course, the quality and size of the home you purchase will depend on your priorities and needs. While some prefer a larger home over new furnishings, others would gladly downsize if it meant they got to live in a brand-new home.
6. What are the steps to buying a home?
Each step of the homebuying process is crucial, and having a knowledgeable team, including a real estate agent and mortgage professional, can streamline the process. These professionals can help you navigate any challenges that may arise.
If you decide that now is the right time to buy, here is what you can expect the process to generally look like:
- Get pre-qualified: This step will allow you to begin the process with an understanding of how much you may be able to borrow.
- Find a real estate agent: Connect with a real estate professional to guide you through the process. They can only knowledgeably help you once you have been pre-qualified.
- Home hunt: This is the fun part! Begin exploring potential properties with your real estate agent.
- Choose a home: Once you’ve found the right property, express your interest to your real estate agent, and they will do all of the negotiating for you.
- Get pre-approved (obtain Certificate of Eligibility for VA loan): This step solidifies the amount the lender is willing to give you to purchase the home.
- Obtain funding: Finalize your mortgage application and ensure you have sent your lender every piece of documentation they have requested.
- Make an offer: Work with your real estate agent to draft a compelling offer based on your pre-approval.
- Close: Once your offer is accepted, you and your real estate agent will complete the necessary paperwork, inspections and final details to officially become a homeowner.
Explore AHRN for Your Next Home
Whether you’re in the process of selling your current home or embarking on the journey to acquire your next one, AHRN is your comprehensive resource hub. Specifically designed to aid military homebuyers, our platform streamlines the search for housing near your upcoming installation.
Moreover, we provide an outstanding platform for sellers, or their real estate agents, to seamlessly list homes for sale. Your housing journey starts with AHRN – where convenience and excellence come together!