By Rob Greenbaum, Vice President of Sales with AAFMAA Mortgage Services LLC
Navigating the mortgage process can be a little scary for first-time homebuyers. Many don’t know where to start and find themselves overwhelmed by the amount of information and resources available —including multiple websites, real estate agents, homebuilders, and lenders.
What’s more, many servicemembers and Veterans make their first home purchase at an older age than their civilian counterparts. This is because servicemembers tend to move frequently during their military careers and often wait to buy a home until they arrive at their final duty stations where they know they can reside long-term.
A Little Preparation Goes a Long Way
The first step of any house-hunting process should always be a budget assessment. Your finances are likely stable if you’re considering a home purchase, but it’s always a good idea to bolster your savings and emergency funds in the event you run into unexpected expenses, such as a home repair.
If you are preparing to retire or have the flexibility in your career to choose the location of your new home, it’s important to conduct some research into your chosen destination. Factors to consider include the commute to your and your spouse’s jobs, the quality of the local schools if you have or plan to have children, the proximity of shopping and entertainment, and the overall cost of living in the area, especially property taxes.
Lastly, if you’re moving to a new town or state, don’t forget to account for changes to recurring expenses such as electricity and car insurance. Do some research and adjust your budget accordingly to avoid any unpleasant surprises.
Different Mortgage Products to Consider
There are many different mortgage products available for purchasing a home. If you are a servicemember or Veteran, you can pursue a conventional mortgage, which is also available to the civilian population, or you may also be able to qualify for a VA Home Loan – made possible by the U.S. Department of Veterans Affairs.
VA mortgages are available exclusively to qualified current and former servicemembers and can be an attractive option for some military people based on their financial situation. VA Loans typically feature a lower down payment than traditional conventional mortgages. Based on your eligibility, you may qualify for a mortgage with 3-5% down, or even a mortgage with no down payment. For eligibility requirements and more information on the VA loan benefit, visit the VA website.
There are also Federal Housing Administration (FHA) loans, which require a minimum down payment of 3.5%, but those low down payment FHA loans would require mortgage insurance. While VA and FHA loans are great options for many families who haven’t been able to amass a large down payment, most lenders will advise homebuyers to consider putting some money down if they plan on remaining in the home for a while. If you plan on owning your home for many years, making a larger down payment may help lower your interest rate.
Conventional mortgages, on the other hand, are backed by Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs). These are the most commonly known and are available to anyone who is qualified. With conventional mortgages, it is best to make a minimum down payment of 20% if you can afford to do so. Lower down payments may require private mortgage insurance (PMI). This insurance adds a monthly fee to your loan payment to protect your lender from the increased risk of default on a mortgage with a higher loan-to-value ratio (LTV). The LTV is simply the loan amount divided by the lower of the purchase price or appraised value for a purchase transition and the appraised value for a refinance. There may be a way to structure conventional financing with a first mortgage of 80% LTV and then a second mortgage at 10-15% LTV. This enables the borrower to put less money down without paying PMI because the first mortgage is 80% or less of the home’s appraised value.
With any mortgage, you need to think about the terms of the loan, such as the length of repayment and different types of interest rates. If you have the ability to make a higher monthly mortgage payment, you may want to consider getting a 15- or 20-year mortgage instead of a 30-year mortgage because the interest savings can be significant. In addition, you pay down the principal amount more quickly, which builds equity faster, as long as the value of the home stays the same or increases over time.
When choosing the best kind of mortgage for you, it’s always a good idea to consult a licensed loan officer for expert advice.
Working with a Military-Friendly Lender
Military and Veteran families are fortunate to have resources available to help guide them through the mortgage process. This includes the loan officers at AAMFAA Mortgage Services LLC (AMS). As part of AAFMAA, we exclusively serve military members and have a strong understanding of the military lifestyle. We make suggestions with your best-interests in mind. It’s important to meet with an AMS loan officer early in the process, especially if you’re a first-time homebuyer. We can help explain your options, the application and approval process, and what fees you might expect.
The first question potential homebuyers often asks is, “What is the interest rate?” What they may not realize is that there are many other factors which to consider when evaluating loan options — like the down payment amount, length of loan, type of interest rate and fees. Your loan officer will disclose all applicable fees, to you in a loan estimate. Also, remember that you will need to pay property taxes and homeowner’s insurance. Usually the property taxes and insurance are included in your monthly payment — often through an escrow payment — and would be part of your total monthly mortgage payment of principal, interest, taxes, and insurance (PITI).
There is a lot to consider when you are preparing to make a home purchase and securing a mortgage. However, servicemembers and Veterans can rely on AAFMAA’s many online resources available to help understand the process. Our dedicated, military-friendly loan officers have your best-interests in mind. Give them a call today at 844-244-0564 to get started.
Use our calculators to help you determine how much your monthly VA Loan payment might be.
Rob Greenbaum is currently the VP Sales and Marketing with AAFMAA Mortgage Services LLC (AMS) and has almost 30 years of experience in the mortgage sector. AMS is part of the American Armed Forces Mutual Aid Association (AAFMAA), the longest-standing not-for-profit member-owned association, and offers low-rate and low-cost mortgages exclusively to the military community. For more information, please visit: www.aafmaa.com/mortgage.