Getting that first big job, tying the knot, having a baby and owning your first home — these are some of life's major milestones. While everyone's journey is different, there is common ground.
Take homeownership, for example. Most people wonder about mortgage payments, taxes and home maintenance (not to mention making your first major investment in real estate). If you are thinking about using your VA loan benefits to purchase your first home, you are likely considering whether the choice will be a financial benefit or a burden.
To provide some clarity, let's delve into the Top 5 Concerns of First-time Homebuyers.
Concern #1— What if I don't qualify for a loan?
Statistics don't lie. Most Veterans who apply for VA loans do qualify. According to a recent VA release, 72 percent of all 2014 VA loan applications were closed successfully. Compare this to 68 percent for conventional loans and 60 percent for FHA. In fact, VA provides Veterans more access to homeownership than any other program. So, fear not! Apply for that VA home loan. You never know if you'll get approved unless you try.
Devil's Advocate—What if I'm among the 28 percent who get the thumbs down? Don't throw in the towel just yet. Instead, use the insights gained from the setback. A specialized VA loan officer will tell you why you didn't get approved so you'll know what to work on to get the green light later.
Concern #2—Will my life savings be gone after I buy my first house?
First-time homebuyers don't have proceeds from the sale of a previous home to use as a down payment. So they often have to tap into savings for the upfront costs of buying a home. That's where VA loans offer eligible borrowers some special advantages. These government-backed loans require less money up front than most other types of mortgages. According to the Department of Veterans Affairs, nearly 90% of VA purchases are made without a down payment. VA backing allows approved lenders to offer qualified borrowers favorable terms like no down payment on amounts within VA limits. Most areas have a loan limit of $417,000. Curious about the VA loan limit where you want to buy? Click here to find out.
Devil's Advocate—No down-payment loans still have costs. There will be other costs like the VA funding fee (waived for certain disabled Vets and spouses), a VA appraisal fee, and an origination fee. But another benefit of the VA loan program is that you and your real estate agent can negotiate for the seller to pay as much as 100% of your closing costs and as much as 4% in seller concessions.
Concern #3—Can I even afford a mortgage payment?
Are you renting? Some say that if you can afford to rent, then you can afford to buy. According to Trulia's "Rent vs. Buy Report," buying is cheaper than renting in all 100 major metro areas in America. The report makes some assumptions (like how long you'll own the home) and then shows an apples-to-apples comparison of the cost of owning or renting similar properties in the same neighborhood using a five-step formula.If you think you may be able to save money by purchasing, you'll be able to get a good idea of what your mortgage payments will be during your first conversation with a loan officer. Loan approval is dependent on your ability to pay. So once you've shared your income and credit information with your lender and you've met the eligibility and qualification requirements, you will know the approximate amount of the home you can afford, as well as estimated monthly mortgage payments.
Devil's Advocate—What if something changes after your loan has closed and you've moved into your new home? Sometimes life throws a financial curve ball, making it difficult to meet regular obligations. The VA has a program designed to try and assist homeowners in that type of situation. Experienced counselors are available to help find the best solution, often a foreclosure alternative, with the hope that Veterans can keep their homes. For over 6 years, the VA home loan program has had the lowest foreclosure rate of all loan types in the industry. Over a recent period, the foreclosure rate on VA loans was 1.56 percent, while for FHA the rate was 2.81 percent. Even prime conventional loans had more foreclosures at 1.58 percent. To show how hard the VA works to keep Veterans in their homes, in 2014 the VA helped nearly 80,000 Veterans, servicemembers and their families avoid foreclosure and possible homelessness.
Concern #4— I don't know the first thing about maintaining a home!
Renters know that when something goes wrong, they can call the landlord. When you own a home, it's all on you. If your home maintenance talents are lacking, you could take classes or watch online tutorials to expand your knowledge. But you don't need basic contractor skills to own a home. If you can't fix it yourself, there are people you can pay who can.
And if you're really concerned about home maintenance, consider buying a newer home. According to the National Association of Homebuilders (NAHB), a new home actually costs less to maintain than an older home. An NAHB study found that homes built before 1960 have average annual maintenance costs of $564 a year, while a home built after 2008 averages $241. That should be music to a cost-conscious buyer's ears.
Buying a new or recently built home has another perk. These homes typically have lower utility bills. Today's homes have ENERGY STAR-rated appliances, insulated windows and doors and fewer drafts. Other modern components like tank-free water heaters, solar panels and energy-efficient HVAC systems can really save money.
Whether your eye is on an old or new home, it may help to get an inspection before you buy. A licensed inspector should go over the house from the roof to the appliances to the structure, and everything in between, to make sure the property is not a potential money pit. And if there are issues, there are ways to take care of them before you get stuck with a repair bill. The seller can agree to fix them before you close, or you may be able to get out of the deal completely if you have a contingency in your sales contract.
Devil's Advocate—What if a tree lands on your house? Good homeowners insurance can cover unforeseeable damage, from floods to flying debris depending on your plan's coverage. A home warranty may also be a good idea, according to the National Association of Realtors (NAR). A comprehensive warranty can help buyers pay for broken appliances and reduce sellers' responsibility if something goes wrong after ownership changes hands. In some cases, it could be in the seller's interest to offer a warranty as a concession.
Concern #5—What if the economy takes another nosedive and my home value goes down?
As with any investment, you aim to buy low, sell high. Home prices have been on a steady incline—up 4.9% from Q4 2013 to Q4 2014 nationally according to the Federal Housing Finance Agency (FHFA). But if your home's value goes down after you buy, you have the option to wait it out until it recovers. Historically, home prices have had their ups and downs, and in the long run real estate typically appreciates.
Devil's Advocate—What if you happen to buy in a neighborhood that is slow to recover and your home's appreciation takes its own sweet time? You can still take advantage of your maximum tax benefits such as mortgage interest and property deductions, when possible. According to the IRS, you can write off home mortgage interest if certain conditions are met. For example, you would need to File Form 1040 and itemize deductions on Schedule A and make sure your mortgage is a secured debt on a qualified home in which you have an ownership interest. In many cases, if you meet the criteria, you can deduct all of your home mortgage interest.
Many find the benefits of homeownership far outweigh their initial concerns. For more information on VA loans, or answers to questions you may have about your first home purchase, talk to a VA-approved lender by calling 888-359-3661 or visiting https://www.veteransfirst.com
Veterans First is a trade name of Wintrust Mortgage, a division of Barrington Bank & Trust Company, N.A., a Wintrust Community Bank. I NMLS# 449042 I Equal Housing Lender