At some point, most people start thinking about buying a house. If buying a house is on your military family's list for 2018, there are four things you should do now.
1) Review Your Credit Report
First, get your credit report from each of the three major credit reporting agencies.
Most people will be able to access their reports via the free Annual Credit Report website, but your account may be flagged if you’ve moved recently or have inconsistent information in your report. This happens frequently to military families. You’ll just have to request your credit reports via the mail using the same website’s U.S. Mail Request Form.
Then, look over your credit reports. Dispute any errors and see if there are any forgotten items that you can resolve easily.
Once you know your credit report is squeaky clean, consider checking your credit score. Many banks and credit unions, including USAA, make your credit score available if you have a credit card with them. If none of your credit cards offer this service, you can use a free online service like Credit Karma, but be aware that you are giving up some personal information. Or, you can purchase your credit score at myFICO.
Keep in mind that there are numerous types of credit scores, so a prospective lender will probably see a score that is at least slightly different from the score you see. But you want to know what range you’re in before you start mortgage shopping.
2) Build Up Your Emergency Funds
Owning a house comes with all sorts of surprise expenses, so you’re going to want to have extra emergency funds available.
Whether it’s a crack in your driveway, a broken dishwasher, or a windstorm that blows over your fence, there’s no landlord to call. Those expenses are on you!
How much money do you need?
There are a lot of variables, but the average homeowner spends 1-4% of their home’s value on maintenance each year. If you have a $300,000 house, you should be budgeting $3,000 to $12,000 per year for maintenance. Of course, you’ll have years where you hardly spend a thing, but then there will be the year where you need a new roof and your refrigerator springs a leak.
Ideally, you’ll be keeping your house emergency funds separate from your family emergency funds. You may have to start small, but adding just a little bit each month will prevent a lot of stress when your furnace stops working in January.
3) Learn About Landlording
If you’re a military member buying a house, you have to understand that there is a very high probability that you’ll someday become a landlord. Even if you think you’ll never PCS or you know that your house will sell quickly, life and the real estate market can change in a very short amount of time.
Take time to now to learn all about the many aspects of landlording: the legal concerns, marketing, management, the finances, and the taxes.
Each of these topics is complicated enough for multiple articles, but don’t get overwhelmed. Start small and learn a little bit every day. I recommend websites like Bigger Pockets and The Reluctant Landlord to get your education started. In particular, I find that prospective landlords often lack knowledge about the tax implications of renting out their house, both on a yearly basis and, more importantly, when they sell the house.
Capital gains taxes and depreciation recapture taxes can turn a house that has seemed profitable into a long-term loss at the time of sale. You don’t want to be learning this stuff after you’ve owned a rental for ten years.
4) Learn About The Buying Process and Mortgage Loans
Home buying and mortgages aren’t terribly complicated, but most people only buy only a few homes in their lifetime and don’t have the opportunity to develop a thorough understanding of the process. A little effort can increase your knowledge a lot.
There are hundreds of websites that explain the home buying process, different kinds of mortgages, the qualifications process, and how mortgages work. Your local library likely has at least a shelf on home buying and mortgages. You can also find in-person seminars, but beware that the folks hosting probably are trying to sell you a house, or a mortgage.
You can also find homebuying workshops through the U.S. Department of Housing and Urban Development or consumer credit organizations like Clearpoint offer classes or counseling.
Buying a house can be an exciting adventure. Like so many things in life, the experience will be easier and more fun if you are knowledgeable and prepared. If home buying is in your future, get a head start today with these four steps.
About the author: Kate Horrell is a military spouse and expert on all things about money for military families. During her husband's active duty service, they've bought several houses and been landlords for over 20 years. Her passion is helping military families make the most of their pay and benefits.
You can follow Kate at KateHorrell.com, on Facebook, Twitter and Pinterest, and join her Facebook group, Military Money Questions and Answers.
