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Understanding Mortgages

What military members need to know before buying a home

What military members need to know before buying a home

Buying a house while serving in the military could seem like a fruitless pursuit. After all, with active-duty service members frequently on the move due to the nature of their work, becoming a homeowner may not always make sense.

Contrary to popular belief, though, not only are millions of the nation's best and brightest homeowners military, but they also tend to reach the American dream sooner than those who aren't in the armed forces, according to industry statistics.

For example, the median age of an active-duty service person who owns a house is 34 years old, according to the National Association of Realtors. This compares to a median of 42 years of age for non-military Americans.

If you are currently serving or hold veteran status, here are a few of the key things you should know before entering the housing market — pointers that can help you decide if a home purchase sooner than later is in your family's best interest.

1. It's actually less expensive than you think

It's safe to say that the market is currently one that favors home sellers, given supply is limited and demand is quite high, as detailed in NAR's monthly home sales reports. But cost largely depends on where specifically you're buying and your financial circumstances.

As a military member, you may well pay less than those who aren't in the armed services. For example, you may be able to purchase a residence without any money down through mortgage programs offered by the Veteran's Administration through private lenders. 'No down payment' plans are available to both veterans and active duty, although some restrictions may apply, such as if you've just recently joined one of the five branches.

2. Be sure to factor in your frequency of travel

During some parts of the year, you may be on the road quite a bit, while hardly at all during other months. Then again, maybe you're entering a phase of your military career where your workday is the more typical 9 to 5.

Whichever it may be, consider your family's current needs and those that are upcoming. If you're traveling practically every week or it's not unusual for you to be reassigned to a new base unexpectedly, it may be best to sit tight and buy when your schedule is more predictable.

3. It's a great time for improved home values

You've heard it before, and it still rings true: Real estate is all about location, location, location. Where you live typically determines what you can expect to spend. But buying a house is also about timing, and there's no time like the present to take advantage of equity gains.

Through the first three months of 2018, approximately 14 million mortgaged properties were equity rich, according to estimates from ATTOM Data Solutions. That's the equivalent of one in four houses. In other words: You may be able to sell your home for much more than you bought it - if your new-home purchase won't be your last.

Military.com and NAR's websites have other considerations to take under advisement when you're contemplating a home purchase. Knowing your goals and getting in touch with your family's needs can serve as the compass that points you in the right direction. A loan officer will be able to answer any questions you have about the VA Home Loan Mortgage Program, so bring your questions!

Learn more about the VA Home Loan Mortgage Program


Understanding Mortgages

Should you pay off your mortgage early

Should you pay off your mortgage early?

With employment levels rising and average incomes growing in various industries, more people are experiencing the perks of a vibrant economy. Home sales continue to impress, as noted by organizations like the National Association of Realtors, and other big-ticket purchases are up.

Given more money is in many Americans' pockets, some homeowners are likely considering whether it's worth their while to pay off their mortgages early. Conventional wisdom might suggest as much, thereby freeing up funds to go toward other uses. However, declaring earlier-than-anticipated mortgage freedom may not always be the best investment.

So, how do you decide if the move is right for you? These mortgage payoff tips can help you determine the right course:

Assess where you stand financially

Perhaps the best way to assess the situation comes from understanding your current financial obligations. Are you still making payments on a new automobile? Are you planning on making a major purchase? Do your regularly occurring expenses command a substantial share of your salary?

If the answer to these questions is "yes," then getting out from under your mortgage can pay off - quite literally, noted Chris Chen, a certified financial planner based in Massachusetts. One less expense also makes room for emergencies, which virtually never come at a convenient time.

"If you run into difficult financial circumstances, having a lesser debt burden reduces your break-even for life expenses," Chen told NerdWallet.

Consider your mortgage type

The type of mortgage you own also plays a role, financial experts advise. For instance, if you have a 15-year fixed-rate mortgage locked in when rates were low, the terms may be such that you're better off maintaining your current payment schedule and investing your other available funds. Alternatively, you may be in a position where it makes sense to refinance your mortgage to a lower rate, which can help you pay off your mortgage sooner than you would have otherwise.

Another aspect to examine - which isn't the same for everyone - is taxes. If you're someone who prefers to itemize your tax deductions in April when returns are due - rather than the standard variety that most people choose for the sake of simplicity - maintaining mortgage debt may make sense because it keeps you eligible for the mortgage interest deduction. This reduces your tax liability, with the current standard deduction averaging $24,000 for married people and $12,000 for individuals, according to the most recent figures from the IRS. You're, of course, no longer eligible once completing your mortgage payments.

Is retirement something you're considering? According to a recent poll done by Gallup, a slight majority of Americans - 51 percent - believe they'll have enough money to pay for it. Depending on how close you are to exiting the workforce - and whether you want to still be paying for your mortgage with less money coming in - should also be carefully considered in this decision.

No financial decision should be made alone. Talk to your financial advisor or mortgage professional to find out whether an ahead of schedule mortgage payoff makes sense.


Understanding Mortgages

The f-step guide to getting pre-qualifiedThe 5-step guide to getting pre-qualified

If you're in the market to buy a house or apply for a mortgage - something that many people are, given the current inventory situation nationwide - you've probably heard the term "pre-qualified."

Pre-qualification marks the beginning of your homeownership journey. It's a distinction that informs your lender that you are hoping to purchase a home and relays you would like to get an idea of what your options are in terms of financing.

Although obtaining pre-qualification distinction isn't required, it's a smart opportunity that's worthy of pursuit, as it gives you a better idea of the type of house you can afford to buy. This, in turn, can save you time from searching for properties that may be unrealistic from an affordability standpoint. In short, pre-qualification is a great way to improve your odds of being approved for a home loan when the time comes.

Obtaining pre-qualification serves as a golden opportunity for you to find the perfect house you're looking for while sticking to your budget. But to reach this status, you'll need to take care of a handful of tasks. Here are the five things you'll need to become pre-qualified by a certified lender:

1. Proof of identification

This should be the easiest item for you to obtain. From a driver's license to a passport, any official document with your name and picture attached should suffice. However, you'll also need your Social Security number, so make sure the lender has this as well.

2. Income track record

It's important for your lender to know how much money you make to determine your loan candidacy. If you don't have this info on hand, ask your human resources department for your most recent pay stubs. You'll likely need a month's worth (or for however many times you're paid in a 30-day span).

3. W-2 forms

These are the documents your employer sends you at the start of the new year so you can file your tax returns. Your mortgage provider will want to see the hard copies from the last two years. You may also need to show physical tax returns from years that correspond with the accompanying W-2s.

4. Other available assets

Do you have a savings account? Checking account? Investments in stock or bonds? Whatever assets you have, see to it that your lender has all of this information. This further substantiates your financial capabilities, which can help pay for transactions like closing costs and the down payment.

5. Credit score

Although obtaining a copy of your credit report isn't absolutely necessary to pre-qualification, it can really pay off, because your creditworthiness will help determine your interest rate. Generally speaking, the higher your FICO score - ideally 650 and above - the lower your interest rate.

Understand that you don't need to provide these pieces of information until you've received a loan estimate and given your intent to proceed. But if you're ready to take a dip into homeownership waters, pre-qualification can help you get your feet wet.


Understanding Mortgages

What aspects of a mortgage are under your control

What aspects of your mortgage are up to you?

It may seem like the only things you have control over when you're looking to buy a house are the selection of what kind of house you want, and in what neighborhood. Did you know that your decisions can affect your mortgage financing as well?

  Down Payment    
 

DOWN PAYMENT:

Usually, the amount you pay up front is entirely your decision. The current median down payment for first-time home buyers is around 6 percent.

 
  Insurer  
 

INSURER:

When buying homeowner's insurance for your home, shop to find the best rate and coverage.

 
  Owner's Title Policy  
 

OWNER'S TITLE POLICY:

Title insurance is comprised of two parts: the Lender's Policy, which is mandatory, and the Owner's Policy, which is optional (though highly recommended).

 
  Loan Type and Term  
 

LOAN TYPE AND REPAYMENT TERM:

The type of mortgage loan and the length of your repayment term will both affect your mortgage payment and closing costs.

 

What you can change

Understanding what you have control over when it comes to your home purchase could potentially help you save money. Most people understand that working with a real estate agent can greatly improve their home buying experience but they don't consider how input from a few other experts can make a big difference in what it all costs. Working with a Loan Officer, you can learn about the benefits and cost savings of different mortgage loan types, down payment options and lengths of repayment, and go into house hunting pre-qualified and informed. Discussing neighborhoods with your insurance agent before home shopping can enlighten you to areas or house features that allow for better homeowner's insurance rates. The choice of which title agent or attorney to use is yours. 

Reach out to professionals you trust. Ask questions and use your resources. You just may be able to find that dream home and make sure that you get a great deal.

 


Understanding Mortgages

How long does it take to build a house

How long does it take to build a house?

Whether just perusing or intently looking, you've probably noticed something about the housing market: There aren't currently many places to choose from.

The slim-pickings situation isn't a new one. In fact, according to the National Association of Realtors, total supply levels have fallen year-over-year for 35 months in a row. What's more, the overall unsold housing supply amount is hovering at four months as of April, based on the current sales pace.

Given this reality, you may be wondering just how long it takes to build a property from scratch. After all, waiting for a newly constructed house to hit listings - as opposed to an existing one - can serve as a worthwhile option. However, as you might imagine, the period of time that passes before an in-process property becomes a finished product tends to vary.

Based on the most recent analysis available from the Census Bureau and the National Association of Home Builders, approximately seven months is the average amount of time before developers are ready to put a house up for sale. Having said that, "ready" is a relative term, because houses are built for various intentions and by different entities.

For example, when a single-family home is created for rent purposes, the completion average is slightly less than nine months, based on NAHB's analysis. When it's built by the owner of the land, the permit-to-completion process can run between 10 and 12 months.

Where are you looking to buy?

Another factor that can play a role in completion time is the area of the country in which you're looking to buy.

For instance, in the Mountain West - meaning states like Utah, Nevada, Idaho and Wyoming - it's around 15 days from permit to start, then an additional six months from permit to completion. Meanwhile, on the West Coast, you'll often have to be a bit more patient, as it takes around 31 days for developers to begin building after obtaining a permit, then another eight months before they've pounded in the very last nail.

In addition to the region of the country, the nature in which a house is under construction - the city versus someplace more rural - also plays a role. In a New England-based metropolitan statistical area, it's about 10 months before a single-family home receives it's finishing touches. It's slightly less than that in a non-MSA, averaging around eight to nine months.

Almost uniformly, according to the Census' Survey of Construction, properties built in the city versus more rural climes reach completion quicker. This is largely due to availability of labor, as more people live in metros where demand tends to be greater as well. This increases the need for rapid development, meaning as quickly as circumstances allow.

Bill Green, co-founder and COO of Hinged.com, told NAR that environmental conditions in a given region can prove pivotal. One such condition is soil type, which impacts drainage, and topography. For example, building where land is flat, as opposed to an area that's features rougher terrain, tends to have fewer potential obstacles, both in the literal and figurative sense of the term.

The bottom line is this: The average time to build a house is almost entirely dependent on circumstances. Your timeline plays into those circumstances. If you're not in any rush, waiting for a house to reach the finished stage may make the most sense. But if you're looking to buy as soon as possible, an existing home can be just as good - if not better than - a newly built residence.

By working closely with your real estate agent and loan officer, you can look at your available options and settle on the decision that's right for you.


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