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!