Updated: Jun 5
Making the all important decision of buying a home can be both difficult and tough. The decision is even more difficult for military members because of the nature of their work that requires them to move often. Military relocation leaves many service men and women undecided on whether to continue renting or buy a family home. But, on a positive note, military members have access to a VA home loan that enables them buy homes without excellent credit or making a down payment.
VA Home Loan Explained
The loan is a creation of the United States government to assist returning service members to buy homes without making a down payment or having good credit rating. The historic benefit program was created in 1944 and it has benefited over 24 million military members since its inception to purchase homes or refinance an existing one.
Nowadays, VA mortgage is a lifeline for military members as lenders have increased their lending requirements because of a collapse in the housing market. In the absence of the VA loan, most military homebuyers would be unable to own homes because of poor credit rating and inability to meet the requirements for a down payment.
How does a VA Home Loan compare to Traditional Mortgages
• 0% down payment on VA loans while conventional loans require the borrower to make a down payment of up to 20% to obtain a home loan which is limiting for many homebuyers.
• Lenders do not need to purchase Private Mortgage Insurance with the government backed VA loans. But with non-military borrowers, there is a requirement for Private Mortgage Insurance with financing exceeding 80% of the home value which is an extra monthly expense.
• The guarantee that accompanies VA loans provides lenders with a sense of flexibility and safety that translates to the borrowers receiving better rates than conventional loans.
• It is easier to qualify for a VA loan because of government backing. Banks have relaxed qualification standards and assume less risk, making the loans easier to acquire. With conventional loan options, the qualification standards and procedures are strict, which makes home ownership a dream for some homebuyers.
Advantages of Buying a Home while in the Military
By owning a home, you have acquired an asset that annually appreciates in value except rare cases when market conditions dictate the contrary. A home bought at $200,000 can appreciate in value to even more than $300,000 depending on market conditions and your PCS'ing requirements that dictate our length of stay.
Also, your home will build equity over time when you make timely mortgage payments. This will help you obtain financing for another project or an emergency when need arises. Therefore, buying a home is among the best investments to make as it establishes a financial foundation for your kids.
2. Monthly Payments are Predictable
When you buy a home, the monthly mortgage payments are fixed, which helps you plan your budget without fearing a hike in mortgage payments. When you are renting, your landlord can increase your rent at the end of your lease by any amount he wants. In this regard, your house budget diverts from the landlord towards your homeownership.
3. Easy to Obtain Lending
As a member of the military, you are entitled to a VA loan. This type of loan requires no down payment or a good credit score. A VA loan is backed by the government hence there is no additional cost of purchasing Private Mortgage Insurance. Also, lenders assume less risk with VA loans, therefore, loan qualification requirements are easy to fulfill for the homebuyer.
4. Freedom to Modify the Home
With a rented house, you cannot modify any part of the house as you do not own it. If you obtain permission to modify a section of the house, it only the landlord because it will increase the house value since you will move out of the house sometime in the future.
On the other hand, when you own the home, you do not require anyone’s permission to paint your walls a color of your choice, install a deck, or any other modification you wish to undertake. You basically live on your own terms and conditions.
5. It is Cost-effective
It is economically wise to buy a home instead of renting one. If you direct what you pay as your monthly rent towards mortgage payments, you will achieve your dream owning a home. You can pay rent for 20 years and still be without a home at the end. The only beneficiary with arrangement is your landlord.
6. Tax Benefits
The expenses that come with owning a home such as accounting and property taxes are tax deductible. The largest deduction is your monthly mortgage interest.
7. Increased Privacy
Some rental houses are constructed with substandard building materials such as plywood. This can compromise your privacy as sound passes through the walls from your neighbor’s house to your home when renting. With homeownership, the house is built using quality building materials such as stucco or concrete to create a strong sound barrier from outside. Also, you can put up a fence to add more privacy to your property.
8. Provides Stability
While stile serving in the military, you will experience regular PCS'ing which can affect your family. Apart from you, your spouse also has a career that he/she wants to build. Regular military relocation may affect your spouse career advancement as they are never in one place for long enough. Also, constant moving houses affect your children when they have to leave their friends just when they start adjusting to the new place.
Owning a house also allows you to impact your community where your taxes benefit local schools, infrastructure, and organizations. You also have a voice the running of affairs in your area.
9. A Secure Retirement
A home provides you with a retirement investment. The longer the home belongs to you, the more valuable it becomes. A home can appreciate 100% over a 30-year period if other considerations remain equal.
As you advance in age, you can put the house up for sale and buy or rent a smaller house with proceeds of the sale. Alternatively, you can rent out your house and use the income to travel or undertake other fun activities.
Disadvantages of Renting a House
• Renting a home does not help in building your equity. When you vacate the property, you only take house items that only belong to you. But during the duration you are renting the house, the owner’s equity keeps on growing.
• You do not increase your credit rating while renting a house; but timely mortgage payments improve your credit score will help you if need more financing in the future.
• There are no modifications allowed in a rented property and you have to live within the property as it is.
• Increases in rent occur after the expiry of a lease. This means that whatever you are paying as rent this year may change next year.
In conclusion, owning a home gives the homeowner as sense of pride and satisfaction that is not found with renting a house. No matter how long you live in rental houses, you will eventually need to buy a home. As a military person, you should take advantage of VA loans to acquire funding to buy your dream home. Contact us for more information on owning a home to give your family a permanent residence.