Avoid These 5 Costly Mistakes: Essential Tips for Veteran and Military Home Buyers
Having a place to call your own—whether it’s your starter or your forever home—is an essential part of the American dream. The U.S. Department of Veterans Affairs offers plenty of programs to help those who have served in the military become first time home buyers. However, the process to get a home loan as a veteran isn’t foolproof and requires a level of expertise to maximize its benefit. “Being eligible for a VA loan and ultimately being able to secure one are two different things,” explains Phil Hobby, the Broker at Veterans First Realty. “Veteran buyers still need to meet credit, income, and other guidelines set by both the VA and by the lenders that make these loans.” By setting yourself up for success before you start your home search, you can avoid making missteps that have held other prospective homebuyers back. Here are 5 of the biggest missteps, and how you can avoid them.
Mistake No. 1: Not using a real estate agent with VA expertise
The VA loan is a fantastic benefit, but make sure you work with a real estate agent who understands the VA home loan process. “The VA won’t underwrite every house,” says Julie Kolb, a real estate agent with Veterans First Realty. “It is important to use an agent who understands the VA home loan system, the VA appraisal process, and what that all intricacy that is involved.” When you’re buying a home using your VA eligibility, you’ll need to find a home that meets certain requirements. A VA loan program appraiser will also have specific criteria. An agent experienced with VA loans will also know about the loan limits, the debt-to-income ratio lenders will expect you to have to qualify for a home loan, closing costs and other essential information.
Mistake No. 2: Not communicating with your lender
Veterans have access to arguably one of the most powerful home mortgage options on the market, but about 33% of veterans don’t know they have the entitlement. And only about 13% of those eligible currently have a VA loan says the Military Action Coalition most recent survey. One of the biggest benefits you’ll get with a VA loan is the ability to buy with a 0% down payment. Not having to make a down payment can make it possible for veterans to buy their first home, years earlier putting them far ahead in building wealth. VA loans also come with low-interest-rate mortgages, don’t require private mortgage insurance, and have more forgiving credit eligibility requirements. When you talk with your lender, be sure to discuss your service history so you can be informed about all the potential advantages. “Veterans should ask their lender if they offer any incentives for veterans,” adds Leeann Cox, a loan officer at Fidelity First Mortgage in Annapolis, MD. “We can sometimes waive appraisal fees, offer a waiver of origination fee if the veteran has a certain credit score, or give other lender credits.” Everything will get easier as soon as your lender knows you’re a veteran or active-duty service member, so be sure to speak up!
Mistake No. 3: Forgetting about additional upfront home-buying costs
While you’ll have a lot of financial advantages with your VA loan, you will have some borrower costs to deal with. “Probably the biggest mistake I see is veterans coming into the home-buying process not knowing that there are other closing costs and fees necessary for buying a home,” Hobby says. When you’re buying a home, even if you have little or no down payment, you’ll likely have to plunk down a bit of cash for things like a home appraisal and inspections. The amount might not be that much in the large scheme of things, but it’ll help if you are prepared by knowing what you’ll have to spend.
Mistake No. 4: Not thinking of your home as an investment
Maybe you think there’s no sense in buying if there’s a good chance you might be relocated in the next few years. But that doesn’t mean you shouldn’t buy; in fact, that home could end up being a smart investment. By searching in high-demand areas, choosing a popular home style and size, you’ll give yourself a better chance at resale if orders come and you need to move later. Another option is to hang on to the property and rent it out. “My clients and I often go out and look for their first home, with the idea that it’s not just a home for their family, but as a home to rent out later,” Hobby says. “With so many in transition, they’re able to purchase a home and it becomes an investment property for them when they go on to their next duty station or they move.” There are lots of options with a VA loan. You can regain your entitlement, so you can own a rental property and a new home. You can even refinance a VA loan if you are an active-duty service member. You can refinance using a VA loan from a non-VA loan, to increase your loan amount and tap into your home equity, or if you can often get a better interest rate with a new VA loan.
Mistake No. 5: Making other big purchases before closing
Once home buyers find a home and their offer is accepted, they can be excited about moving in and making it theirs. Maybe you have an eye on new furniture or a big screen TV that will fit that family room perfectly. Don’t do that until you’re really a homeowner, even if your lender has approved your mortgage loan. It’s easier to get a VA loan than a conventional loan, but you still must meet lender requirements and debt to income ratios are non-negotiable and if yours goes too high, you will lose your opportunity to buy the home. Wait until after closing to make any other financial moves, just to be on the safe side and to keep your loan on track.