Your New Home: To Buy or Not to Buy?
Winter may not be the prime time you have a PCS on your mind, but it may just be the best time to take stock of what you really want in your next new home. Even if you haven’t yet received your PCS orders, you may know the potential location you’ll be moving to. That makes this a good time to determine whether or not you should buy or rent for the forthcoming few years.
There is no right or wrong answer in most scenarios, as both renting and buying present their own benefits. But, in making this decision, you should consider.
Interest Rates and Trends
When you purchase a home, you will most likely take out a mortgage loan for the cost of the home that your down payment didn’t cover. Every loan program comes with its own interest rates, however, there is generally a trend.
Many financial institutions that administer loans base their own interest rates on the prime rate, determined by the Federal Reserve. At September 2016’s Annual Federal Open Market (FOMC) meeting, the Federal Reserve did not raise the prime rate, so it remains at 3.5%.
When interest rates rise, so do the cost of mortgages. So, one strategy for determining whether to buy a home or rent one would be looking at general interest rates. If they are low, it could be worth investing in a home.
Length of Your PCS
The longer you stay in an area, the more sense it makes to purchase. A mortgage is a bigger commitment than a lease, which generally lasts only a year and, relatively speaking, isn’t costly to break.
If you love your next PCS destination, consider the likelihood of either re-tour or remaining in area if your family will be separating from the military immediately after the assignment. Depending on the area, having an investment property may not be a bad idea, especially if separation from the military is in the foreseeable future and your family aims to return.
If having to resell your home in the next few years seems overwhelming, renting might be the way to go.
Base Realignment and Closure (BRAC) will weigh heavily into this decision.
Your income and cash position
A home purchase will require a down payment, and the more you can put down, the less your mortgage payments will be. If you don’t have a lot in the bank you’re comfortable putting toward such a payment, understand that a lease commonly just involves a security deposit that amounts to a month’s rent.
Your risk tolerance
How comfortable are you with risk? Purchasing property is an investment, and no investment is without risk.
ALL the costs of buying a home
The cost of buying a home involves so much more than just the value of the property. Not only will you be committing to a mortgage, but there are costs for every professional involved in the process — from realtors to the experts that conduct inspections.
Tax advantages of home purchase
If you’re really torn between renting and buying and are in the financial position to make the investment, consider all the tax advantages toward purchasing property. In addition to general benefits, military families may have additional incentive.
If you already own a home at your current station and are debating whether or not to hold onto the property, consider that the number-one reason homeowners choose to refinance is to secure a lower interest rate. At one time, industry experts advised that saving 2% on your mortgage constituted enough reason to refinance. Now, however, according to Investopedia, most consider it worthwhile to pay off an existing mortgage to pursue a different program if, by doing so, they can save 1%.
You know better than anyone just how fast a couple years can whiz past. And, 1% savings on a monthly bill can add up to a significant amount in just a few months — just think about how that seemingly small percentage of savings could accumulate in a year or two.
There are plenty of reasons to analyze your mortgage payments immediately. If you don’t already have a fixed-rate mortgage, you may notice that your payments have increased from your purchase date. If you’re in this position, you’re not alone. Financial institutions often base the cost of borrowing on the prime rate, a widely used percentage determined by the Federal Reserve. When the prime rate increases, as it has over the last year, it is common for financial institutions and other lenders to increase their home equity lines of credit (HELOCs).
Military Families often associate the fall season with a time to make new starts and set household goals. Here’s a good one for you: Downplay your mortgage payment’s dependence on the Federal prime rate, perhaps by exploring a fixed-rate mortgage that can help you keep more money in your pocket because your payments won’t fluctuate too much, thus allowing you to establishing greater financial security.
Whether or not a refinance makes sense for your situation, the ability to determine the best financial decisions for your circumstances will benefit you enormously for the rest of your life. Get in the habit of checking every area of your financial landscape any time your personal situation changes. For homeowners, real estate is most often their most valuable asset. So, it only makes sense that starting a routine of healthy financial analysis should start there.
Regardless of how you approach your new home, always do your research. If you need help at any time, mortgage companies like AAFMAA Mortgage Services can guide you along the way.
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