Ins and outs of buying a home

Q: I would like to know the steps I need to take to have some idea on how to get started on a VA home loan. I really don’t have a clue on what houses or loca­tions are avail­able or how to apply. Can you send me some infor­ma­tion on what to do and where to do it?

–William, Los Ange­les, Calif.

A: With inter­est rates remain­ing at his­toric lows and hous­ing prices still depressed, it could be an attrac­tive time to buy a home…if you’ve got your finan­cial ducks in a row. What’s that mean? Build a “house fund” well in advance to cover a down pay­ment, var­i­ous ameni­ties (drapes, fur­ni­ture and appli­ances, etc.) and other move-in expenses. In the mean­time, find a home you can afford, pre­pare to make a long term com­mit­ment, and select the right house and loan.

I know it’s a bit beyond your ques­tion, but this is impor­tant: how do you know what you can afford? While it’s not meant to be a trick ques­tion, it can be a lit­tle tricky! The monthly total for your prin­ci­pal pay­ment, inter­est, prop­erty taxes and insur­ance (PITI) should def­i­nitely be less than 28% of your gross (pre-tax) income. For instance, if you make $5,000 per month, the most that should be allo­cated to a house is $1,400. And, if you’re mar­ried, you should be able to afford that pay­ment on one income! That’s just in case some­one loses their job, becomes ill or wants to be a stay-at-home mom or dad.  

When it comes to real estate, a long-term com­mit­ment means about 10 years. Be pre­pared to either live there (or be a land­lord) for that long, oth­er­wise you may have to pull cash out of pocket at the seller’s table!

Con­sid­er­ing the long-term invest­ment nature of a home, be sure it cov­ers your cur­rent and future needs…are you plan­ning to start a fam­ily? Or, are kids headed off to school? Need a big yard for dogs?

Now to your ques­tion! I can tell you that for those who are eli­gi­ble, the Vet­er­ans Affairs Guar­an­teed Home Loan is a great oppor­tu­nity. The pri­mary advan­tage is that you don’t need to make a down pay­ment. That means it’s pos­si­ble to finance 100% of the mar­ket value and you can avoid pay­ing pri­mary mort­gage insur­ance, known as PMI, which is a waste of hard-earned money!

You still need to be able to qual­ify for the loan from an income per­spec­tive and have a good credit record. The first step in the process is to obtain a valid Cer­tifi­cate of Eli­gi­bil­ity through the VA or through your lender of choice. After that, the process is not sub­stan­tially dif­fer­ent from apply­ing for any other type of home loan. Check out the VA web­site for all the details.

Remem­ber, one thing that’s become abun­dantly clear over the last sev­eral years is that buy­ing a home is a major finan­cial deci­sion that should be made after much delib­er­a­tion and with a long term per­spec­tive. Good luck!

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USAA or its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor. The information is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional representation before acting on any information you may have found in this article. This article is in no way attempts to provide advice that relates all personal circumstances.

Examples given are hypothetical illustrations and not an indication of the benefits or features of any USAA product. You should seek policies and advice based upon your own particular circumstances. Sample loans are for illustration purposes only and are not a rate quote, pre-approval, or commitment to lend.

Scott Halliwell and JJ Montanaro are CERTIFIED FINANCIAL PLANNER™ practitioners with USAA Financial Planning Services, one of the USAA family of companies. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

USAA Financial Planning Services® refers financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Company in California, Lic. #0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.

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