Whether to buy or rent is a controversial question, to say the least. Add in the unpredictability of military life, and the stakes are even higher when it comes to deciding whether home ownership is a viable option for your family. Here’s what you should consider before buying a home.
Are you eligible for a VA Loan? If this is your first home purchase, and you are eligible for a VA loan, use it! This is an earned benefit of service and one that too many people do not take advantage of. If you have already used your VA Loan entitlement, that does not necessarily mean it is not still a potential benefit for a second home purchase.
Is your VA Loan paid off? You can restore your entitlement by obtaining a new Certificate of Eligibility.
Are you selling your current home to a veteran who is also eligible and planning to use
their VA Loan benefit? If they purchase your home with their entitlement, you can use
your own entitlement again.
Has the military reassigned you at a point in time where you still owe on your current VA
Loan but have entitlement remaining? (Like if you were eligible for $400,000 but bought a house for $200,000?) If you can demonstrate sufficient income and credit, you may be able to use the remaining benefit without having sold the previous home.
If you can’t use a VA Loan, can you afford the down payment? With a conventional loan, you’ll need to plan to be able to make a 20% down payment on the cost of the home. Anything less than that and your lender will require private mortgage insurance (PMI). The cost of PMI will depend on several factors—the insurer, your loan-to-value ratio, your credit score, etc. PMI is added to your mortgage payment monthly and is an expense you should account for when running your numbers.
Is your financial house in order? Do you have some cushion for unanticipated expenses? Is your credit rating decent? Does your/your partner’s job require a security clearance? Finances can and do impact the ability to obtain/maintain a security clearance. If you’re stretching yourself thin financially, it can impact your service member’s job if there are adverse credit consequences. Be honest with yourself and your situation here. If you’re liability rich and asset poor, then this may be a bad time to consider home ownership.
Have you factored in the “hidden” costs of home ownership? You know about mortgage payments and insurance and taxes—and now PMI. But have you given yourself some wiggle room for the inevitable expense or emergency? You’ll need to factor in the cost of things that break and/or need to be maintained. An A/C unit that stops working on a 100-degree day. Yard maintenance. A roof that needs to be replaced. Even having the best home inspections before buying a home will not necessarily catch all of the potentially problematic things. And even if they did, homes are living, breathing things that require care, attention, and repair. Will you be able to cover the cost of such maintenance and repairs?
Do you have (or could you arrange) temporary housing elsewhere? If you will require the proceeds from the sale of an existing home to purchase a new home, you’ll need to make alternative housing arrangements in the interim. Any number of factors can impact the time gap between sale and purchase. Is it possible to pull off two closings in a day? Yes, if the geography and timing and logistics and luck all work in your favor. But keep in mind that anything that postpones the first closing can derail the second.
Can you cover two mortgages at once? If your financial situation is such that you’re purchasing one home with faith that the other will sell, then you should be ready and able to cover mortgages on two properties at one time—for as long as it takes to sell your former home. It’s great if you’ve positioned yourself so that savings would take care of that expense for a few months. But what if the house doesn’t sell in a few months? Or in a year? Do you have a backup plan?
Are you prepared to be a landlord? Hypothetically speaking, let’s say you’re in your new home and still not fielding any serious offers on your former home. After several months of covering two mortgages, savings are gone. Are you comfortable with the idea of being a landlord until the house sells? Would you be willing to rent out your property? Absorb the cost of any damage your renters cause or repairs they require? Be responsive to their needs as tenants? Travel to address any issues and/or designate or hire someone else to do so on your behalf?
These are some heady questions, but not ones meant to deter your dream of home ownership. They’re meant to help you go through this process fully informed and prepared for the journey. Do your homework. Crunch the numbers. Bring in a trusted financial advisor if necessary. And then enjoy your new home, knowing you’ve done what’s good for your family and your finances.