By Fay Silverman
Branch Manager, AMS Virginia Beach Office
If you’re separating from the military and thinking about buying a home, congratulations!
Whether it’s your first home purchase or if you’ve bought and sold previously, it’s a big financial step. Our best advice? Start early — (even before you finalize your decision — by evaluating how your income and spending will change as you transition into retirement or begin a second career.
Why? If you plan ahead and know the steps to take ahead of time, you may save yourself some common difficulties. For instance, you may find you have to save thousands of dollars for closing costs and/or a down payment, you may need to earn additional income to qualify, or cut back on expenses. Or all three.
Here are a few tips to get you started.
How Much Can You Afford?
Ideally, your housing expense should not exceed 30% of your monthly income. So if your monthly income is $5,000, you can safely allocate $1,500 ($5,000 x .30) to a mortgage payment (that should cover your principal and interest, real estate taxes, and private mortgage insurance if applicable, also known as PITI). If you utilize a conventional mortgage or FHA financing, instead of using your VA entitlement with a VA mortgage, you may pay for private mortgage insurance (PMI) or a mortgage insurance premium (MIP).
To get an idea of how much of a loan you may qualify for, check out our online tool. Then we suggest you chat with a Military Mortgage Advisor, a licensed Mortgage Loan Originator, to go over the numbers and discuss your home buying timeframe. Naturally, the shorter your timeframe is, the higher your annual savings goal may need to be.
If you will be using a VA Home Loan, a down payment may not required. This is something to discuss with your Military Mortgage Advisor. But to secure a better interest rate and start building equity right away, you might want to put 10% or even 20% down. In addition to investing in your future, a down payment can make your offer stand out to sellers as a strong compensating factor, especially if they are comparing multiple offers.
Whether you decide to skip or save for a down payment, you’ll need some other savings buckets to be part of your plan. These would cover household maintenance and repairs (estimate 1-2% of the purchase price per year for this), an emergency fund to cover living expenses for six to 12 months, and “other” unexpected costs, such as a major car repair or medical expenses not covered by insurance. AAFMAA’s Wealth Management experts can help with this overall planning.
(Painlessly) Build Your Savings
That’s a lot of money to set aside… so why not make it easy? Make the savings “invisible” by setting up automatic withdrawals from each paycheck that will go directly into designated savings or money market accounts. When money moves from your paycheck to your dedicated savings accounts without you even seeing it happen, it takes some of the sting away and removes the temptation and ability to spend the money on something else.
You can also shorten the process by banking “windfalls,” such as income-tax refunds, gifts received, bonuses or large commission checks, or even the sale of personal assets. By depositing those funds into your savings accounts, you fast-forward the process of saving for your future home and other expenses.
Achieve Your Goals
Setting and following up on your goal to buy a home can be a lengthy process that requires a bit of planning and sacrifice, but think of the possibilities: as you leave military service, you can put down roots, build equity, and start to enjoy the rewards of homeownership.
We’re Here to Help
If you’re not certain about whether or not it’s the right time for you to purchase a home or how to get started, please contact us online today or give us a call at 844-218-6926. One of our Military Mortgage Advisors will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of low-rate and low-cost mortgages designed to meet your needs.
Ensuring AAFMAA Members obtain the best mortgage possible is our mission. Get your free mortgage assessment today!