No Money Down Doesn’t Mean No Money Needed
Buying a house can often times seem like an impossible dream for the average American. But as military family members, many people believe it’s “easy” because, when eligible, we can buy a house with “no money down.” Now when you hear this what do you think? What does “no money down” mean to you? Do you relate it to buying a car where you walk into the first dealership you find, you sign some papers and then drive off in your new car? Well, for most people, this is not the case. Buying a home is a wonderful thing, but if you are going to take on the single largest debt in your life, you may want to prepare yourself, take some time, and do it right.
So the first thing you do is drive around your dream neighborhoods looking for houses. You wonder how much THAT one is…or THAT one? You start to day-dream about your kids finally getting into THAT great school. Finally you say, “This is it…THIS is THE house! Let’s call the realtor listed on the sign and buy it!” Believe it or not, this process works for some home buyers.I don’t recommend it, but it does happen. For most, myself included, we need to proceed slowly, get online and conduct some research, figure out the financing, taxes, and insurance.
The Internet is a very powerful tool when searching for houses, but use it as a guide, not the bible. For example, let’s say your rent is $2000 a month and you know that’s what you can afford for a mortgage. So you get online, find a few houses you love, and then use some of those cool “monthly mortgage payment calculators” to figure out what you’ll owe per month based on purchase price. You must realize these numbers are more of a best-guess scenario. You see, this information is based on factors that don’t always apply to your situation; such as, the amount of money you put down, your interest rate, and the actual cost of taxes and homeowners insurance. Even the type of loan you qualify for will most likely be different. But what’s probably more of an issue with online numbers is that these tools don’t know your debt to income ration (DTI). DTI is the magic number that actually determines the maximum amount your payments can be and therefore how much house you can afford. So what you really need to do (and here comes the blatant plug for my industry) is speak to a professional. Why? A professional realtor will direct youto specific answers that apply directly to your situationand the specific home you would like to buy. I guess what I’m trying to say is that you really should seek professional guidance BEFORE finding a house you love toavoid the possible disappointment of falling in love with a house you can’t afford.
Mortgage lenders will explain the many different types of loans available and then help advise you on the best one for your needs. For most in our military community that will be a VA home loan. A VA loan is pretty complex, but to give a very basic explanation, a VA loan is a home loan guarantee that enables lenders to provide you with more favorable terms. One of those terms is to offer you no money down. This is usually the part where people stop listening and start shopping, but not today. My goal is to have you better prepared, so here is a list of some additional charges you may see while buying a house and using a VA loan:
- Earnest Money Deposit (Approx 1% of contract price)
- Home Inspection (Approx $250-$500 depending on the size of the home)
- Appraisal (Around $450)
- Credit report
- Title Insurance & Fees
- Taxes (to be put in escrow)
- Home Owner’s Insurance ( to be put in escrow)
- Lender Fees (but then there are also lender credits)
- And the dreaded… VA Funding Fee (if you have a disability rating by the VA…ask if you qualify to have this waived)
For the purpose of full disclosure, I give these approximations for cost because that is what they are (roughly) in my area. They could be totally different in your area. Again, everyone’s situation is slightly different.
As you can see, 100% financing and “No Money Down” does not mean “No Money Needed.” But, it is a fantastic benefit that you’ve earned. Hopefully after reading this, you are now just a little better prepared to purchase your new home. Remember, BEFORE you begin house-hunting, find a professional you trust and ask him/her some very specific questions that apply directly to your situation. If you do, the odds are very good that this process will go smoothly, and you will find the home of your dreams.
About the Author
Molly Winkle, BSBA/Realtor/MilRES/ASP, is a Navy Veteran, military spouse, and licensed Realtor in the state of Maryland. She proudly serves the military community as a Military Residential Specialist and Accredited Staging Professional who works for Long & Foster Real Estate, Inc.