Indeed, owning your own home is a cornerstone of the American Dream. And if you're one of the million-plus Americans serving in the military to preserve that dream, now might be a great time to take the plunge. If you're still renting, Uncle Sam wants to help you buy a home. Keep in mind, real estate can be one of the most profitable investments you ever make.
That's not to say that home buying comes without its singular headaches. There's plenty that the uninformed novice can get wrong.
However, if you or your spouse are in or have retired from the U.S. armed forces, there are many resources available to help make this American Dream a reality.
Here are 10 vital tips to help you with the home-buying process, whether you've just received a Permanent Change of Station (PCS) or are looking to break out of your rental rut.
#1: Start saving now.
You may not be expecting to purchase a home for a few years yet. That's OK and now is the perfect time to start a comprehensive savings plan. If you're deployed, the Department of Defense offers a special Savings Deposit Program that lets you invest up to $10,000 for a 10% return after you're overseas for 30 days. You can collect interest for up to 120 days after your return to the U.S.
#2: Get your credit score for free.
If you're active duty, you can get a Bright-Score report for free. This includes a summary of your credit report as well as help improving your credit score. The personal financial manager on your base can help you with this.
#3: Pay down your consumer debt.
Reducing the amount of consumer (read: credit card) debt you owe before making the home-buying plunge can help raise your credit score and thus lower your mortgage rate. You may want to consider using money you may have saved for a down payment to pay off your credit cards, and then look for a low to no down payment loan available just for service members and veterans.
#4: Determine how long you'll be there.
Before committing to purchasing a home, decide if it's going to be worth it. Are you looking at being relocated in the next few years? Depending on your home, your rate, and several other factors, count on having to wait at least three years before you break even on your mortgage. If a PCS looks imminent in the next year or two, you might want to hold off on buying just yet. And if you want to ensure a profit - make sure you can expect to stay put for at least five years.
#5: Get the best realtor.
Did you know there's special certification for realtors who want to work with service members? When choosing a realtor, find one who has received Military Relocation Professional (MRP) certification. They'll be more sensitive to your needs.
#6: Explore VA loans for low rates.
Right now, VA home loans are among the very best on the real estate market. Currently, if you're on active duty or a veteran you can enjoy interest rates as low as 3.375% on a 30-year mortgag with as little as zero dollars down!
#7: Remember that your BAH may change.
If you're an active member of the armed forces, you're receiving a Basic Allowance for Housing (BAH), which you can use toward your mortgage, as well as for rent. However, remember that this is calculated based on the cost of living for your current area. If you move to a different zip code, you may receive more... or less. The Department of Defense has a handy calculator here: DoD calculator.
#8: Limit your housing costs to 30% of your pay.
There are some unscrupulous realtors out there who will tell you that you can afford more house than you actually can. Try to limit the cost of your housing, which includes your insurances, taxes, maintenance, and utilities, to 30% of your take-home pay.
#9: Make sure you have money saved for repairs.
The biggest disappointment of owning a new home comes when the first thing goes wrong - that moment when the air-conditioning gives out on a sweltering day or the roof leaks after a rainstorm. Unfortunately, you can't just get on the phone with your landlord and have it fixed. Instead, you'll need to keep some cash on hand for these sorts of emergencies. A good rule of thumb: Try to keep 3% of your home's value in savings just in case of a costly fix.
#10: There's an app for that.
Military By Owner is an iPhone app, as well as a website, that helps armed forces house hunters connect with military home sellers to find the perfect home for the next PCS. Find out more by clicking here.
Buying a home can be an overwhelming proposition, but also the most rewarding investment you ever make. Make sure you do your diligence and use every resource open to you, as a U.S. active-duty or veteran service member.
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John Persinos is an analyst with Investing Daily. At the time of publication, he owned none of the stocks mentioned.