The possibility of home buying is always on a military family’s mind because we move so much. The trick to a successful home purchase is early preparation. You want to be sitting on “Go!” when a golden opportunity becomes available. This pre-home buying checklist helps you plan for the hard work of home buying so that later, you can focus on fun stuff like planning your first housewarming party or designing your new bedroom.
1) Save Money Early and Often
Saving enough money to buy a home is a common hurdle military buyers have to jump before becoming homeowners. Saving sounds simple, but stashing away enough money to cover immediate costs could take years. Here’s what to expect:
Down Payment
Down payment standards have changed a lot over the last few years, so not every situation fits the traditional “20% of the purchase price” suggestion, but it’s a good goal to have.
This amount could help you lower your interest rates and mortgage payments, and you’ll avoid paying for private mortgage insurance (PMI). Note that a VA loan does not require a down payment—more on that to come.
Earnest Money
Before closing, buyers offer earnest money (held in an escrow account) to let the sellers know they’re serious about buying the property. Sellers like to see about 1% to 3% of the sale price in earnest money.
The money protects them if the buyer decides to abandon the deal.
Closing Costs
Closing costs are processing fees your mortgage lender requires to create and manage your loan. Closing costs cover things like the home appraisal, title search, and application and attorney fees, totaling about 3% to 6% of the loan.
You can often roll these fees into a home loan, and if the buyer’s market is healthy, buyers can negotiate the fees with the seller.
2) Check and Correct Your Credit
Your credit rating is an important factor for loan officers. They use it to decide if you’re risk worthy—they want to know if you can pay the mortgage on time each month. You don’t need perfect credit, but the higher the credit rating, the less the mortgage companies worry, which means they can offer you lower interest rates.
For reference, Experian says that FICO scores range from 300 to 850 and that FICO thinks the target range you should shoot for is between 670 and 739.
Your credit report details all the accounts you’ve opened and closed in your lifetime. Use a tool like annualcreditreport.com to verify your history’s details. You may find mistakes that need correction before applying for a loan. Search for small issues like misspellings and bigger problems like a stolen identity.
If you uncover issues, give yourself ample time to make the changes. It could take months, depending on the situation.
3) Learn About the VA Loan
Most military members seriously consider using their VA loan benefit to buy a home, even though it’s not the only loan type available. The VA loan terms are some of the best in the real estate game because it doesn’t require a down payment or private mortgage insurance.
They also have less stringent credit requirements since the federal government backs the VA loans issued by banks. Most VA loan lenders require a score of at least 620.
A VA loan is affordable, but it doesn’t mean there aren’t costs involved. Don’t forget you’re responsible for closing costs, earnest money, and any money needed for immediate improvements you want to make.
4) Ask for Real Estate Agent Referrals
Don’t worry if you don’t know every detail about VA loans or credit reports. Experienced real estate agents can help you every step of the way, including happily answering endless questions.
The gold standard for a real estate agent is a direct referral from trusted family and friends.
If you don’t have a connection, start searching within the community you’d like to call home. There are many military spouses and veteran agents with real-world military life experience to help you find the ideal house. Interview three to five agents and have a list of very specific “must-haves” to share with them.
They should respect your boundaries, but also have the expertise to share out-of-the-box ideas that could land you your dream home.
It’s never too early to start preparing to buy a house! Time always seems to move faster in military life, so the sooner you can get your finances and credit reports in check, the smoother your home buying process will be.
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