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Buying a Home While Transitioning Out of the Military


If buying a home is a goal you want to achieve once you’ve transitioned from the military, AAFMAA Mortgage Services LLC (AMS) has the tools and expertise to help you get the mortgage and home you deserve.   Whether you are looking to buy a townhome or a much larger single-family detached house, our knowledge and financing options will help you get your Mortgage. Military Made.℠

Getting a Mortgage While Separating from the Military

The first step to take toward homeownership is figuring out your budget. Think about what expenses and income you will have coming in when you leave active service. For example, will you be getting a full-time or part-time job and how much money will you be making each month? Then add that to any monthly income you might get from the military. Keep in mind, you will no longer receive your basic housing allowance, so you will need to have enough money to pay for monthly rent while you save and shop around for a house to buy. Once you have an estimate of your gross monthly income, then make a list of your credit payments such as credit cards, personal loans, and auto loans. Dividing your monthly debt payments (including the amount of your future mortgage payment) by your gross monthly income gives you your debt-to-income (DTI) ratio – an important measure when lenders consider approving your application for a mortgage. For a VA Home Loan, your DTI ratio needs to be no greater than 41%.

The next step is to think about is what size home you are going to need, and how long you plan to stay in the home. If you have kids or plan to start a family, then the quality and location of daycare and schools will be a critical factor when you start searching for a home to buy. You will also want to consider your commuting time if you are starting a new job after leaving active service. Once you figure out these things, you can then narrow down where you may want to buy a house and how much space you will need. Keep in mind that the size of the home and location will also determine your utilities and other expenses, such as homeowners’ association (HOA) fees. Don’t forget to put those numbers into your budget, as well as having extra money set aside for home maintenance and emergency funds. Obviously getting out of the military and buying a house is exciting and has many benefits, but it also has more costs and responsibilities than living on base or renting. Be sure you think through everything before applying for a mortgage. Also, it is a smart idea to gather up financial records and documents you will need before applying – for example: paystubs, two months of recent bank statements, credit card and loan statements, etc.

Once you have analyzed your budget and written down your home requirements, you are ready to apply for a mortgage. It is important to prioritize a mortgage with low rates, but it is also critical to understand the process and steps involved, different loans products and terms that are available, and all of the costs and fees such as mortgage insurance vs. VA Funding Fees, discount points, administrative fees, taxes, homeowner’s insurance, and more. Therefore, you may want to work with a lender and licensed Mortgage Loan Originator who has experience helping servicemembers and Veterans with a wide range of mortgage products and flexible terms to fit your financial situation and needs. Some of the challenges you may face are getting approval for a home loan or coming up with an adequate down payment, which may not be feasible for all military families. However, Veterans are eligible to apply for certain home loans that can make the home-buying process easier and more affordable.

Referred to as VA Home Loans or military mortgages, these loans are exclusively offered to members of the  military community — including active duty, guard, reserve and separated Veterans —— by the Department of Veterans Affairs (VA) and they come with major perks. Here are some key differences between VA Home Loans and regular mortgage loans:

No Down Payment

The first and most essential benefit that comes with a VA Home Loan is that you may qualify without making a down payment. The majority of other loan products come with at least some amount of down payment — typically 3.5% to 20% — to qualify for a decent interest rate and installments you can afford.

To put this particular advantage into context, when purchasing a home for $250,000 using a regular mortgage loan, you would need to have between $8,750 and $50,000 toward your down payment to qualify for the loan.

By easing the down payment requirement, a VA Home Loan lifts a huge burden off of recent retirees and Veterans, whether at the time when they transition out of the military, or later in life, by helping make the dream of home ownership a reality.

Read more: VA Loan Update: Larger Loans (Still with No Down Payment)

No Monthly Mortgage Insurance, but there is a VA Funding Fee

Most FHA and conventional loans come with extra costs, in the form of monthly mortgage insurance, if the borrower makes less than a 20% down payment. These are payments that applicants are required to make on top of the monthly principal and interest. With a VA Home Loan, however, members of the military community are not required to pay these extra monthly charges.

All VA Home Loan candidates are exempt from having to pay monthly mortgage insurance, which can save you hundreds of dollars in some cases. The money you are saving can then be put into savings or used to pay for other financial solutions, such as life insurance or financial planning for your future.

However, the VA Home Loan comes with a funding fee that varies based on whether or not you’ve used your VA benefit before and if you put money down. Check out this table from the Veterans Administration to learn more about the how the funding fee is calculated.

The fee may be waived if you have a VA service-connected disability rating, in which case you’ll have to complete an exemption form to confirm any disability compensation you receive and to determine if you’re eligible for the funding fee waiver. You may also qualify for exemption if 1) you’re a veteran who would be entitled to receive disability pay for a service-related disability if you weren’t receiving retirement or active-duty pay, or 2) you’re the surviving spouse of a Veteran who died while on duty or as a result of a service-related illness or disability.

In all other cases, the VA funding fee must be paid completely upfront, or rolled into your mortgage, which will mean you pay for it over the life of your loan regardless. In contrast, mortgage insurance premiums are based on your creditworthiness and are reduced and eliminated as you pay down your mortgage over time and build equity.

The trade-offs between the VA funding fee and private mortgage insurance deserve a closer look when you’re shopping for a mortgage. Our expert Military Mortgage Advisors at AMS are here to help you determine which path is best for you.

Lower Cash Reserves

A major reason why most people are unable to finance a mortgage is that lenders require them to have at least two months of mortgage payments available after closing costs. Depending on the circumstances, mortgage payments can be very high, and having enough to cover two payments at once can be unrealistic for some military families.

Luckily, applicants for a VA mortgage do not have to worry about these cash reserves. As long as you have enough to cover the closing costs, you’re all set.

Easier Refinancing

In addition to the laundry list of other benefits that come with a VA mortgage, it’s super easy to refinance a previous VA Home Loan and it may not require as much documentation. There are two options when it comes to VA refinancing:

  • Streamline Refinance: This is another term for an Interest Rate Reduction Refinance Loan (IRRRL), a refinancing option that does not require an appraisal of your house and requires no income documentation from you when you simply want to pay off your existing VA Home Loan with a new mortgage at a lower interest rate.

  • Cash-Out Refinance: This option enables you tap into the equity of your home to get money for home improvements or other major expenses. More documentation must be provided in order to qualify for a cash-out refinance, including evidence of income and employment for all borrowers who will appear on the loan application, as well as W-2 forms from the previous two years. VA lenders may also ask for copies of your federal income tax returns from the last two years.

    Read more: It’s Time to Refinance Your VA Loan

Learn More about AAFMAA Mortgage Services’ Offerings

If you’re planning on buying a home while transitioning out of the military and you’re looking to get the best mortgage for you, talk to the experts at AAFMAA Mortgage Services. We’re ready to assist you in obtaining a low-cost and low-rate mortgage to build, buy or refinance your home. Get a free mortgage assessment today or call us at 844-211-6308 to get started.