We've Decided to Buy a Home!!
(San Angelo, TX, USA)
Your article on whether military families should rent or buy a home
was so comforting to read. It's awesome that I could get a cut-and-dry answer on whether we should buy or not.
It is an absolutely perfect time for us to buy a home.
1) VA home loan
interest rates are incredible
2) it's truly a long-term investment, and
3) it's the perfect way to raise our children for the next 3 to 4 years.
We have been researching for the last 3 months on whether to rent or buy a home (we decided on buying), the last month narrowing down where we want to buy, and next week I'm going to our next duty station to see some homes and hopefully sign a contract!
Thanks for sharing your insight.
Thank you for sharing your comments. We hope you'll come back to this page and post your updates as you buy your home, and share your experiences as a military homeowner with our readers.
First, though, let me caution you about interpreting our previous article (linked above) as a cut-and-dry answer about whether military families should rent or buy a home at any particular duty station.
Consider All the Factors
While the article is generally positive about the benefits of home ownership for military families, it also cautions you to consider a number of factors before making your decision. And it points out some of the pitfalls of owning a home, which can be made more difficult because of military service.
Unlike other families, those in the service don't have as much control over when to sell a home. If you get transferred when the market is down, as it is now, it may be difficult for you to break even after costs of selling are paid.
In that event, you may need to decide whether you are comfortable in the role of long-distance landlord, or if you would rather sell and possibly take a loss.
Evaluate the Financials Realistically
Be sure you're taking a realistic look at the financial aspects of the deal, and are prepared to deal with unanticipated events. (Maintenance and repairs are not unanticipated, so be sure you have a reserve to cover them.)
If you can learn to evaluate the financial aspects of the purchase unemotionally, and treat it as a business deal, you'll be less likely to overlook problems or pay too much.
Don't be Blinded by Love
One more thing: Although you'll need to like the house to enjoy living in it, try not to get caught up in the emotional aspect of "falling in love" with the house. Many home buyers have made unwise choices that way.
Once you "fall in love with the house," you'll have a tendency to overlook flaws or potential problems, or at least minimize them in your own mind in an attempt to justify your purchase. You're also likely to pay more than you should just to be sure you get the house.
Will you Rent it When You Move?
If you think you will want to keep the house as rental property when you move, make sure your mortgage payment will be low
enough that rent will cover it, plus pay for property management (figure 10%), plus a repairs and maintenance reserve. And you may want to pay for landscaping if the rent will cover it, because tenants rarely take good care of landscaping.
As we discussed in the earlier article, you may still come out ahead even if you have to take a slight negative, but you should never go into a deal planning on a negative cash flow.
Take Advantage of Low Fixed-Rate Loans
As you pointed out, mortgage rates are at a 50-year low. So be sure you take advantage of that by obtaining a fixed-rate mortgage to lock in the low rate for the life of the mortgage.
Don't be lured into the trap of getting a variable-rate mortgage for an even lower interest rate, because when rates start back up, your payments will increase. It will be much safer to lock in a fixed rate now, while the rates are so low.
Some people recommend that if you can afford it, you get a 15-year mortgage, because you'll pay much less in interest over the life of the loan. I personally don't recommend that option, especially for military families, who will most likely sell the home after a few years anyway.
Stay in Control of Your Payments
My recommendation is that you get a 30-year fixed loan, and if you want to pay it off faster, just pay an extra $100 a month. If $100 a month is more than you can afford, then just pay an extra principal payment each month. Your amortization schedule will show the amount of principal.
Using this plan, if something unexpected happens and you find yourself in a financial hardship, you won't be locked into the higher payment. Instead of having to re-negotiate your loan, or risk falling behind on the higher payments, you'll have the freedom to drop back to the lower minimum mortgage payment without any hassle till your finances recover. Then you can start paying extra again if that's your choice. But you're in control.
In the early years of your mortgage, almost all the payment goes toward interest. Only a very small amount (sometimes only $15-20 or so) goes towards principal in the first payments. The interest is figured on the remaining principal balance, so if you can pay an extra $100 a month in the beginning towards reducing principal, the amount you're paying interest on will decrease a lot faster. Very few people ever stop to think about it.
And if you've paid down your principal faster, you've also built equity faster, which will help you be able to sell without out-of-pocket costs, even if the market isn't great.
One of the things your mortgage company will insist on is homeowner's insurance, and it will most likely be paid through your mortgage escrow account. We highly recommend USAA homeowner's insurance for military families.
So, Andrea, keep us posted on your home-buying journey, and good luck. We hope you find a home that meets your family's needs, is affordable, and, after you've determined that, one that you can also fall in love with.
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