PCSing stands for Permanent Chaos & Stress, right? One area that adds a cloud of anxiety the buying and selling a home is financing. Can we afford the location we are moving to? Will BAH cover a mortgage in the top school district or will we need to rent? Are we going to be house poor forever? There are plenty of questions you’ll need to answer, but empowering your military family with knowledge of your mortgage options smooths out the buying process. That’s why DMM sat down with Michael Aguado (NMLS: 1230742), U.S. Navy Corpsman Veteran and licensed Mortgage Broker in Florida and North Carolina for Trident Home Loans (NMLS: 65716).
Meet Michael Aguado, VA Loan Extraordinaire
What should every military family know before they start their house hunt?
Michael: Before you start house hunting you should know your budget and what you will be able to afford. It’s extremely helpful to find out how much BAH you will receive before you PCS to a new Duty Station. Finding this out beforehand will help you accurately determine your budget. You should also have a pretty good idea of a lender that you would like to work with. I feel as though I have an advantage over some lenders because I am prior military and I know what it’s like to PCS over and over again. You need to also do your research on realtors in the area. A good realtor can be the difference between you getting your dream home or not.
What factors should a military family consider when deciding to rent or buy?
Michael: Many factors may come into play when you are trying to determine whether you should rent or buy. One is how long you will be at your new duty station before you PCS again. The longer your tour the more it makes sense to buy rather than paying rent. Why pay someone else when you can invest in your own equity in a home? Another thing to think about is how hot is the housing market. Would you be able to sell before you PCS again? On the other hand, do you feel like you would be able to rent it out and will you have the ability to keep the home rented? It’s important that you weigh your options together and make a decision that best fits your family’s needs.
I also recommend that all military families calculate their gross income at the new station before beginning a house hunt. Add your income prior to taxes, BAH at your new duty station, BAS, Flight pay and any additional income to help calculate what you can afford. Be sure you track your fixed expenses too like car payments, student loans, groceries, utilities, and cable. One expense most new families don’t consider when looking for a new home are HOA fees. Some neighborhoods have reasonable annual fees while others can go north of $1,500 and require professional lawn services. It’s easy to fall in love with homes that are out-of-budget, doing the math before the house hunt allows families to find the perfect home without financial stress.
Speaking of finances, how much money should a military family budget for a mortgage?
Michael: When it comes to a budget you first need to how your DTI (debt to income ratio) is determined. First, you will need to add up the monthly payments on all credit cards and installment loans and any other mortgage payments you have. Then you will find out what your gross monthly income (Pay before taxes are taken out) is. Once you figure those numbers out you will then divide your debts by your gross pay and that will determine your DTI. The reason you will want to determine you DTI is if you want to get a home loan, your DTI should be no higher than 45% – 50% for conventional loans. Do know that once you go over a 45% DTI ratio, it does get more difficult to get approved for a loan. In regards to VA loans, your DTI ratio may not be the determining factor in your loan approval. VA loans may allow for a higher DTI but like the conventional loan the higher your DTI ratio the harder it is to get approved for a loan.
Why is a pre-approval letter important?
Michael: That is a tricky question because you can have a Pre-qualification letter or a Pre-approval. A Pre-qualification letter (or pre-qual) is a letter from a lender that is based on the information you have given the lender which they will utilize to determine whether or not you qualify for a loan. This would consist of looking over your pay stubs, W2’s, bank statements and pulling your credit to determine your credit score. This really only takes 15 – 20 mins to accomplish and will give your lender a great idea of what needs to be done to get the loan done. A Pre-approval letter does all the same things as the Pre qual letter except that after your lender determines that you have a great chance at qualifying for a loan, they will then send it to an underwriter. Once the underwriter determines you are qualified at that time you will be Pre-approved for a loan. Most realtors will except a Pre qual letter and may have some questions for your lender and that is a good thing because it puts your realtor at ease and lets them know that you can afford the home and you are not here to waste their time. The benefit to having a Pre-qual or Pre-approval letter is that you can now shop for a home with confidence and make an offer on a home in a hot market before someone else snatches up the home you love.
Who qualifies for VA Loans?
Michael: If you have been in the military more than 2 years, the chances are you are qualified for a VA loan. If you are discharged from active duty with Honorable discharge, the chances are you are also qualified for a VA loan. You will need to have your lender pull your COE (Certificate of Eligibility) from the Dept of Veterans affairs.
Are there any incentives for the first-time home buyer?
Michael: Yes, most lenders offer programs that allow first time home buyers to put down 3%. There are also a lot of incentives for buyers and you do not have to be a first-time home buyer. You need to make sure to ask your lender if there are any incentives you qualify for. As a Loan Originator myself, I make sure to let my clients know if they qualify for any incentives, because who doesn’t want more incentives to buy a home?
How do VA Loans differ from other mortgage financing options?
Michael: VA loans are a benefit to service men and women that have served in the military. VA loans allow you to put no money down on a home up to the VA county limit, which differs from county to county. Using a VA loan, you will not have MI (Mortgage Insurance) on your loan and that will give you a lower monthly payment. On a conventional loan, depending on what loan program you qualify for, you may have to put as much as 20% of the sales price down on the home. If you do not put 20% down on your loan then you will have monthly MI, which will then raise your monthly payments and may raise your DTI and cause you to be no longer qualified for the loan. Most of the time the VA loan rates will be better than conventional rates, which will save you money.
How do you find competitive interest rates?
Michael: Here at Trident Home Loans we encourage our borrowers to shop for rates because the way we find better rates is by shopping more than 20+ investors to find the best possible deal for our clients. We are Veteran owned and operated and our way of giving back is making sure our clients get the best possible deal that they can get and if that takes us expending a little extra effort to find you a great rate, rest assured we will find it.
Have a question about your VA Loan? Michael Aguado and the team at Trident Home Loans are available for your PCS needs Monday through Friday from 8 am to 5 pm Central Time. You can shoot Michael an email with your questions email@example.com or follow him on Facebook for more mortgage tips.
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