You’ve served your country, and are ready to rent or buy property. Congratulations! We value the sacrifices you’ve made, and are committed to making your transition to civilian life as seamless and stress-free as possible. The following guide provides answers to some of the most commonly asked questions about renting and buying, while also providing expert money-saving tips and advice along the way.
Renting a Home or Apartment – Which is Right for You?
The rental market includes both homes and apartments. While deciding which rental type to pursue is a personal choice – predicated on factors such as price and privacy – each building type confers its own distinct drawbacks and advantages. Here are a few factors to consider:
Renting a Home
Rental homes provide an opportunity for more square footage, outdoor space, and a neighborhood feel. That said, it’s worth considering that (1) if you live in a big city, there may be a dearth of available and/or affordable options, and (2) the nature of the landlord-tenant relationship. Most rental homes are managed by the property owner – as opposed to a professional property management company. This may or may not be a good thing. On the one hand, a property owner has “skin in the game”: when serious maintenance issues arise, they’ll be motivated to respond quickly because it’s their investment on the line. On the other hand, in the absence of company-mandated rental rules and regulations, a landlord may take a laissez-faire approach to responding to requests they deem to be “low-hanging fruit.”
Tips You Can Use:
Credit: While good credit is preferred, it’s not always required. You’re dealing with an individual (not a for-profit conglomerate.) As such, the landlord may be empathetic to difficult life circumstances that may have adversely impacted your credit, and/or may be veterans themselves.
- Income: Proof of income is required. As a general rule, the landlord will want to see a monthly income that is at least three times the monthly rental rate. (Note: a higher income can often alleviate concerns about a less-than-stellar credit score.)
- Security Deposit: Rental homes typically require a larger security deposit – no less than one month’s rent.
- Lease Term Requirements: Rental homes typically require a lease term of 1-year or more, and may include an early termination clause (and penalty fee) in the contract.
Expert Money-Saving Tip: Committing to a longer lease term – (18-to-24 months versus 12-months, e.g.) – positions you to ask for a 5%-10% reduction off the monthly rental rate. Landlords know that locking in reliable, long-term tenants will save them time, money, and hassle down the line – and they’re willing to make concessions for it.
Renting an Apartment
Renting an apartment provides the opportunity to build a strong sense of community. Apartment complexes tend to be clustered in city centers, or close to convenient transportation options.
Other pros include having an array of amenities – including pools, gyms, and community rooms – steps from your door. Most apartment complexes also have onsite management, who can deal with maintenance requests in a timely fashion.
Cons include: Lack of privacy, shared walls, and limited outdoor space.
Tips You Can Use:
- Credit: Your credit score will factor into your application approval. The larger the apartment complex, the more flexible they may be regarding a credit floor.
- Income: Proof of income is required. As with a home rental, the person who approves your application will want to see a monthly income that is at least three times the monthly rental rate.
- Security Deposit: This depends on whether the apartment comes furnished or unfurnished. Typically, though, the security deposit on an apartment is less than it is on a home.
- Lease Term Requirements: These terms can be flexible, ranging from 3 months-to-1-year.
Expert Money-Saving Tip: Many new construction complexes offer amazing specials, designed to lure in tenants, and drive up occupancy rates. These specials can include discounted rental rates, reduced or waived security deposits, or 1-2 months free rent up front.
Compare & Contrast Rates: Utilities, Insurance, Pets & Service Animals-
- Utilities. The Big Three are water, gas, and electric. These costs will run higher for rental homes than apartments. While most homes provide gas appliances, some apartments do not.
- Insurance. Renter’s Insurance is required for renting most apartments, and can range between $18-$30 per month, depending on where you live.
- Pets. Most apartment complexes will require an upfront pet security deposit and/or monthly “pet rent.”
- Service and emotional support animals. You cannot be denied housing for having a service or emotional support animal. It’s federal law. Just make sure you have the requisite documentation in place.
Purchasing a Home
Homeownership is part of the great American dream. It’s about comfort, security, and putting down roots. It’s also the single biggest financial investment you’ll likely ever make. That’s why it’s important to understand the ABCs of the home-buying process, as well as the programs and advantages afforded to you as a result of your military service.
Finding a Lender
Unless you’re an all-cash buyer, you’ll need to get approved for a loan to finance your purchase. There are three main types of lenders: mortgage brokers (sometimes referred to as “mortgage bankers”), direct lenders (typically banks and credit unions), and secondary market lenders.
When you meet with your lender – and we always recommend meeting with more than one to compare rates and services – be sure to mention your military status.
Understanding VA Loans
One of the biggest benefits you’ll get with a VA loan is the ability to buy with 0% down. VA loans also come with low-interest rates, don’t require mortgage insurance, and have more forgiving credit requirements. There’s no penalty for paying the loan off early. And, a VA loan is “assumable” – meaning, if you’re deployed overseas, or need to relocate for a job, another eligible buyer can take over your loan with lender approval.
While the VA home loan is one of the most affordable home loans available, it’s not free. You will pay a funding fee for your home loan, and will also pay up to 1% in origination fees to your lender. These fees can be rolled into the loan.
In order to obtain a VA-loan, you’ll need to receive a certificate of eligibility, or COE. Your lender should be able to assist you in applying for this. A full list of eligibility requirements, and more information about VA loans, can be found on the U.S. Department of Veterans Affairs web site.
Additional Financing Options
If you don’t qualify for, or chose not to use a VA home loan to finance your purchase, there are other loan programs available to you. They include:
- Conventional Loans: A conventional loan is offered by private lenders and is not guaranteed or insured by a government entity, like the U.S. Department of Veterans Affairs. These loans can boast great rates and flexibility, including fixed rates and adjustable rates (ARMs), with loan terms ranging from 10-to-30 years. In order to qualify for a conventional loan, you typically need a credit score of 620 or higher. Unlike a VA loan, conventional loans require a down payment – which can be as low as 3%. However, if you put less than 20% down on a conventional mortgage, you’ll have to pay for what’s known as private mortgage insurance, or PMI. Keep in mind that the more money you put down, the lower the cost of your overall loan.
- FHA Loans: Designed for people with a small down payment or poor credit history, the FHA loan is government-backed. These loans are provided through local banks for those who don’t qualify for traditional mortgages, and are more flexible in terms of credit scores. (A credit score below 580 requires 10% down, while a credit score above 580 only requires 3.5% down). Unlike conventional loans, FHA loans come with mortgage insurance. This coverage protects the lender from a loss if you default on the loan. You’ll pay an up-front mortgage premium, plus a monthly premium.
- USDA Loans: USDA loans are another zero-percent-down loan, but they’re designed specifically for people living in small cities or rural areas. These loans are issued through the USDA Rural Development Guaranteed Housing Loan Program, run by the United States Department of Agriculture.
Choosing a Realtor
If you decide homeownership is right for you, the next step is to choose a realtor. Look for someone with a long sales track record, and strong negotiation skills. You’ll also want to select an agent who has a personality you enjoy – as you’ll likely be spending a lot of time together.
Lastly, if you’re getting a VA loan, make sure you work with a realtor who understands the process. The VA loan is not your typical housing loan, and not all properties meet VA loan requirements. You can save yourself time, money, and heartache by working with a VA-experienced realtor.
Finding Your Home
This is the fun part! But, when shopping for a home, always keep resellability in mind – as it’s the nature of military life to have to move at any moment. Important resale factors include:
- Location – A home in neighborhood with high walkability and quick access to stores, restaurants and community amenities will sell more easily than a home located in a remote location.
- Upgrades and updates – Having features such as a new roof and new appliances will make your home easier to sell.
- Schools – Consider buying in an area with good schools. This is a huge selling point for future homebuyers
Making an Offer, Home Inspections and Contingencies
Once you find a property you love, your real estate agent will research and analyze what similar properties in that area have recently sold for. In real estate parlance, this is known as a Comparative Market Analysis, or CMA. A CMA helps an agent determine whether the property is priced correctly, and what kind of offer to open with.
You’ll have several other important decisions to make after that, including:
- Financing terms
- Contingencies you wish to include
- Setting the date and time of closing
Contingencies typically fall under three main categories: appraisal, home inspection, and financing approval. These contingencies are put in place so that you, the buyer, can back out of the deal if something goes wrong.
- A home inspection contingent offer gives you the right to have your new home professionally inspected. Home inspectors look past the visible surface to the infrastructure, inspecting plumbing and looking for faulty features. They check electrical systems to make sure they aren’t overloaded or a safety hazard. They also look at possible structural problems like the foundation, walls, and floor joists. Any problems noted during the inspection period are subject to additional negotiations between you and the seller. If you can’t reach an agreement, or if you’re uncomfortable with what the inspections turn up, you have the right to walk away from the sale.
- Appraisal contingency: With this contingency, a third party hired by the mortgage lender evaluates the fair-market value of the home for sale. If the appraised value proves to be less than the sales price, the appraisal contingency lets you back out of the deal. For example, let’s say you and the seller have agreed to a sales price of $300,000, but the property only appraises for $280,000. Since the mortgage company can only loan you up to the fair market value of the home, there’s a $20,000 difference that you’ll need to make up. You’ll either need to renegotiate the sales price with the seller, or come up with additional financing to make up the difference between the appraisal and sales price. If neither option is possible, the appraisal contingency allows you to back out of the deal.
- Financing (or loan) contingency: This contingency protects you from getting into a real estate sale without proper financing in place. It’s a common misconception that being pre-approved means your financing is secured. It doesn’t. Rather, pre-approval is merely the first step in the financing process. You’ll still need to go through the underwriting process. If the lender doesn’t approve your financing, you have the right to use the loan contingency to walk away from the sale.
The Escrow Process
You’ve probably heard people say they’ve “opened escrow” on a property, or maybe even that they’ve “fallen out of escrow.” What, exactly, does this mean? It’s pretty simple. It means that once the seller accepts your offer on the house, a neutral, impartial party with no vested interest in the house is brought in to oversee the proper distribution of paperwork, and to ensure no funds change hands between parties until the terms and conditions of the purchase agreement have been met.
While the escrow process varies from state to state, there are a few key steps that all escrows entail. First, you will be assigned an escrow officer, and an escrow case number. You will then need to wire over your earnest money deposit, or EMD. The EMD is money given by the buyer to the escrow officer, to demonstrate that they’re serious about the purchase and are operating in good faith. The EMD will be held in escrow and credited towards the property’s purchase price when escrow closes.
In real estate speak, “closing escrow” means the transaction has been completed and the home sale is final. You’re probably wondering how long the escrow process lasts. This depends on the timeline you negotiated in your original purchase agreement. Typically, escrows can be completed in 30-45 days, but there are reasons why it may take longer to close escrow. For example, if you’re buying a new construction home, it’s possible the developer will experience delays in receiving permits and final approval from the relevant housing authorities. Or, your seller may need a leaseback until he/she secures new housing.
Finally, when you hear people say they’ve “fallen out of escrow,” that means the sale has fallen apart. This could be the result of one or more contingencies not being met, as discussed in the Contingency Section above.
Closing & Closing Costs
Closing costs are fees associated with your home purchase – such as title insurance, origination and recording fees – that are paid at the close of escrow. How much you owe in closing costs depends on how much the home was purchased for, and the type of loan you have. The closing costs for VA loans, for example, are capped. You should ask your escrow or loan officer to draw up an estimate of how much you will owe in closings costs. This way, there won’t be any unpleasant surprises in the final days leading up to the property sale, as you’ll know roughly what you’re on the hook for.
One of the final steps in the closing process is a final walk-through of the property itself. This is to ensure no damage has occurred to the property since the last time you saw it, and that nothing has been removed from the home that was included in the purchase. You’ll also need to complete final paperwork. If you have any questions about the closing paperwork, make sure to ask your realtor. Once the paperwork is signed, and the deed is recorded by the County Clerk, the home is yours. Welcome home!
We hope this guide has been a helpful resource to you. Please do not hesitate to contact us with any questions related to your rental property or purchasing search. We thank you again for your service, and look forward to working with you soon!
Please see our infographic below for this article summary.