The Mortgage for the Active Military
If you’re still on active duty, you’ve probably spent a good deal of time wondering whether it’s worth it to buy a house at your current station. The answer to that question might depend a lot on whether you are married and/or have dependents, but it also depends on what your options for mortgages are. If it’s going to cost you $10k upfront to buy a house, and you don’t have $10k, then you’re definitely not going to be buying a house yet. A person in the active military has very different circumstances than any other person looking to buy a house, and so there are some things to consider when you’re looking at buying a home that will make a big difference in your experience and the effects the purchase has on your finances. We’ll talk about three tips to make sure you choose the right mortgage option for your situation.
Definitely, Absolutely, Positively Use Your VA Loan Benefits
VA loan benefits are fantastic for any VA-eligible borrower, but there are some awesome things in the VA loan program you can utilize that solve the exact issues that an active military borrower runs into. First, is the IRRRL (Interest Rate Reduction Refinance Loan). The IRRRL is a refinance option that you can use to keep your home financed with a VA loan even after you’ve moved out. This can be very helpful if you decide not to sell your home when you receive PCS orders. IRRRLs can be closed on with literally $0 out of pocket and do not require you to be still using the property as your primary residence. Second is the VA compromise sale. When you get PCS orders, you often need to move fast, and if you bought a home, this can make life pretty difficult on you. For many military homeowners around 2008, this became financially devastating to them because they could not sell their homes for as much as they still owed on them. The VA compromise sale is where the VA steps in on a short sale and makes up the amount owed to the lender. You will still lose out on any equity you’ve put in the house, but at least you won’t be at the lender’s mercy to let you out of your mortgage without taking your savings, car, and first-born child. These protections are only available if you are using a VA loan to finance your home already.
Go Hybrid ARM, Not Fixed
Hopefully, you’ve been convinced to use your VA loan benefits. If not, give us a call, and we’ll keep giving you more and more reasons to choose VA until you are. Once you’ve decided to go VA, you still have to decide which loan option to go with. Particularly for borrowers that are still active military, our best recommendation is the VA hybrid ARM. Why? Because you can get an ARM at an extremely low rate that is fixed for the first 3-5 years, by which point you may not even live there anymore. Even if you still do, the VA hybrid ARM can only increase a maximum of 1% each year and cannot increase more than 5% over the life of the loan, so you have strong protections from radical fluctuations in the interest rate. Not only that but thanks to reamortization, your monthly payment might still go down even if your interest rate goes up. Ask one of our loan officers what the heck I’m talking about. A VA hybrid ARM will get you an insanely low-interest rate, probably for as long as you’re going to live in that home.
Always Refinance With an IRRRL
Chances are, you’re not going to stay in your current house long enough to build up a substantial amount of equity anyway, let alone stay there long enough to enjoy the fruits of spending that equity on improving your house. Since you really won’t ever need cash back, if and when you refinance your home, do so with an IRRRL. The VA Funding Fee is much, much lower on an IRRRL than on a normal refinance, you are allowed to roll all of closing costs into the loan if you wish, and you can get the entire refinance done from start to finish in as little as 10 days if you’re prompt in providing information to the lender.
A Note on Buying a House at Your Current Station
There’s a lot to consider when you’re considering housing for you and your family at your new station. Financially, you need to keep in mind that it costs money to buy a home beyond the down payment and the monthly payments. Closing costs are mostly made up of money that doesn’t go into your equity; they’re essentially an entry fee into home-ownership. Is buying a house the best thing that you can throw $10k at right now? The answer may very well be ‘Yes’, but it may also be ‘No’. Finances aren’t the only thing to consider, however. Your family may very well need things that only a house can offer, and there may not be any good rentals that fit your needs. Not that you need reminding, but make sure you make the best decision for your family.