August 29, 2017 – Many military families underestimate the cost of home ownership, particularly first-time home buyers. Here, Anthony Powell provides some tips to military families before jumping into home-ownership. Additional tips may be found at AAFMAA Mortgage Service’s blog.
The first tip is save money. Military families need to have a rainy day fund and should not simply look at the cost differential between renting and buying (although important). The length of time the military family intends to stay in the home is important and should be at least 3 years or longer (in most situations that’s how long a military family should stay in a home in order to achieve “payback” compared to renting). Having a rainy day fund is imperative, and should be at least 6 months of payments (preferably 12 months) after closing on a primary residence. Even if a military family is in a fixed rate mortgage, taxes and homeowners insurance may fluctuate significantly depending on the area of the country.
Unexpected expenses include heating and air conditioning (ranges from $3k+ in cost to replace), water damage (can be in the thousands of dollars), water heater breaks and sewer line breaks (sewer lines are typically not covered in a homeowners insurance policy), lightning strikes, and other costs need to be planned and saved for ahead of time.
Unexpected expenses are one thing, but being prepared and having insurance that provides peace of mind to the military family is imperative. Do not over-insure the home as the military family is throwing money out the window. Over-insuring is simply valuing the building structure higher than its’ true value. Typically the land is worth about 25% of the purchase price and therefore if the military family insures the property for the purchase price, this is an example of over-insuring.
Do ask about natural disaster and hazard issues in the immediate area. An insurance broker has a fiduciary responsibility to explain policy issues to the military family, whereas a direct underwriter may not. For example, flood insurance is not provided in a typical homeowners insurance policy. Therefore, the military family needs to better understand elevations of the primary residence and speak with a professional insurance broker about these risks. According to Kiplinger, the average cost of flood insurance is about $700 on an average home. Ask the military family’s insurance broker about special studies zones, earthquake risk, rising water risk (flooding), lightning risk, snow risk to roofs, shifting ground risk (mudslides, etc.), fire and other hazards.
If the military family’s primary residence is subject to flooding, speak with those that deal with these issues all the time (mortgage broker, Realtor, homeowners insurance agent), as many companies advertise products in this area and yet, only a few actually work.
Competitive, accurate, honest, transparent, and member-owned. Experience the difference at AAFMAA Mortgage Services. AAFMAA Mortgage Services LLC is licensed in 13 states (a complete list and licenses may be found at http://www.aafmaa.com/mortgage). The team operates from 639 Executive Place, Suite 203, Fayetteville, North Carolina 28305. Call 844-218-6926 (844-4-AAFMAA), email mortgage(at)aafmaa.com or visit the website at http://www.aafmaa.com/mortgage to reach AAFMAA Mortgage Services. Equal Opportunity Lender. Lender NMLS: 1423968. Anthony Powell, NMLS ID 78385.