By Kevin R. Crooks, Jr.

While we don’t have a crystal ball, AAFMAA Mortgage Services LLC (AMS) is immersed in the housing finance market and staffed with military mortgage experts, many of whom are former military personnel. As such, we keep a close eye on the market and PCS trends and listen closely to the needs and experiences of AAFMAA Members who are purchasing, refinancing, selling or building a home in 2025.

What we’re hearing these days are questions like this: Is this a good time for me to buy, sell, refi, or build my home? Of course, each Member’s answer depends on many factors, including personal financial goals and readiness. So putting those aside for now, here are the conditions we anticipate as we enter 2025.

Related: How to Thrive in a Low-Inventory Market Whether You’re Buying or Selling

Interest Rates Are Still “High”

Mortgage rates rose in 2022 after the Federal Reserve began raising its benchmark interest rate to reduce inflation. By the end of 2023, average rates for a 30-year fixed-rate loan were over 7%, and they peaked at 7.79% in October — a 23-year high.

While that’s not a high rate in a historical sense — rates hit 18.63% in October 1981 — 7% rates have made it more expensive for buyers to finance a home than just a few years ago. It has sidelined some buyers and dissuaded some homeowners from selling or refinancing and potentially losing the 2-3% mortgage rate they had secured during the pandemic.

As inflation cooled in 2024, the Fed lowered its benchmark rate three times, including a .50 basis point cut in September and .25 basis point reduction in December, putting its rate in the 4.25%-4.5% range. However, Fed fund rate cuts are not tied directly to mortgage interest rates, which shift with the bond market and, in turn, are buffeted by economic data (inflation, unemployment, economic growth) and the yield on long-term Treasury bonds (in particular, the 10-year Treasury note).

While mortgage rates initially dropped in September to 6.20% in anticipation of the Fed’s September rate cut, strong labor market data indicating a resilient economy, caused mortgage rates to start rising again.

At the end of the year, the 2024 housing market felt a lot like 2023’s with prevailing high interest rates, rising home prices, and a low housing stock inventory.

What Might Happen in 2025?

While mortgage rates had been widely predicted to decline in 2025, the 30-year fixed mortgage rate is now expected to stay elevated between 6% and 6.5% for the next two years.

Buying a Home

Regardless of market conditions, if you’re ready financially to buy a home, this could be the right time to start reaping the benefits of homeownership. There are likely financial gains and tax advantages to be had, and being a homeowner lets you put down permanent roots in a community where you can make personal changes both inside and outside your home to increase its value.

Speaking of which, as a buyer you may consider rising home prices as a negative, but as a homeowner you may enjoy that increase in your home’s value is equity or the portion of your home that you own outright. Equity becomes an asset you can use to borrow against home-equity products to pay off high-interest credit card debt or make home renovations.

It’s also possible to use down payment assistance programs to lower your debt-to-income ratio to help you qualify for a better interest rate or to buy down your interest rate.

AMS can help you understand your options in terms of mortgage products and pricing, how much home you can comfortably afford, and how to budget for the ongoing costs of homeownership.

Related: Yes, You Can Tap Into Your Home Equity

Building a Home

If you plan to build your next home, construction loans offer some of the same advantages as VA-backed purchase and refi loans, such as not having to take out private mortgage insurance (PMI). However, on permanent financing with a VA Home Loan, depending on your circumstance, you may have to pay a funding fee.

A construction loan works more like a line of credit than a traditional mortgage so instead of getting all of the money at once, Members draw what they need as the construction progresses. As more money is drawn against the loan, the loan balance increases.

AMS offers two construction loan products:

• A Land Advantage Loan℠ can be used to purchase up to 20 acres to build a primary residence. You will need a credit score of at least 680 and to be able to put down 25%. The land must be zoned for residential use, accessible (with a road on at least one side), and meet the minimum water and sewage requirements.
• Construction Advantage 80℠ Loans of $200,000 to $2 million can be used to build a home, used as your primary residence, on property you own. You must be able to make interest-only payments during construction and once the home is built. AMS can help you obtain a permanent mortgage from a wide range of options including VA, FHA, and conventional loan products.

Related: Members Switch to AMS to Pay Off Their Construction Loan

Selling Your Home

If you’re planning to sell due to an impending PCS, be sure to prepare your home well in advance to get the best price possible.

If you have a low-rate assumable VA Home Loan, be sure to include that in your listing as it could help eligible buyers assume your low rate — a big plus in the current market.

Related: 3 Pre-Listing Ideas to Get the Best Price for Your Home

We’re Here to Help

Whether you’re thinking about buying, ready to start home-shopping in earnest, or considering a refinance, an AMS Military Mortgage Advisor, a licensed mortgage loan originator, will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of affordable mortgages designed to meet your needs.

Ensuring AAFMAA Members obtain the best mortgage possible is our mission. Get your free mortgage assessment today or give us a call at 844-422-3622!

Kevin Crooks, Jr. is the Business Development Manager for AMS.