Along with the temperatures, home prices and interest rates are cooling in many areas, perhaps signaling a return to a buyer’s market for many areas. The Mortgage Bankers Association (MBA) trade group predicts that 30-year mortgage rates will fall to 6.6% by the end of 2024, while Fannie Mae and the National Association of Realtors® (NAR) predict rates will end 2024 around 6.7%.
Lower rates are widely anticipated to stimulate home purchases and refinances. That said, this may be the ideal time to brush up on some home purchase basics.
Related: Download Our Homebuying Guide
What Is a Mortgage?
Unless you have enough money to buy a home outright, you will need to apply for a mortgage. A mortgage is simply an agreement between you and a lender, such as AAFMAA Mortgage Services LLC (AMS), that allows you to borrow money to move forward with purchasing or refinancing a home. This money allows you to pay the seller in full for a property.
The lender will review your finances to determine how much you will be able to borrow. Lenders consider several factors when determining this amount, including your:
• Debt-to-Income (DTI) ratio: Lenders compare your monthly expenses to your gross income, including housing costs and total debt.
• Income: Lenders consider the amount, stability, and type of income you have. They may look at your gross income, which includes wages, salaries, interest payments, and other earnings before taxes. Lenders may also consider extra income from side jobs, alimony, child support, commissions, overtime, and investment accounts with adequate documentation and explanations. However, they usually won't consider income that's not expected to continue for at least two years.
• Credit score: Lenders consider your credit score and history. This is something you may want to review in advance by yourself so you can take steps to eliminate any dings that will affect the lender’s decision. Keep in mind that your credit score may impact the interest rate on your mortgage.
Related: Use our calculator to estimate the home price you can afford based on your income, debt, and down payment.
What Happens Next
Each lender you meet with should provide you with a Loan Estimate, which presents the terms of your loan, such as the interest rate, monthly payments, and any estimated closing costs. By law, all Loan Estimates must use the same template so the offers are easier to compare side-by-side. Doing so may save you thousands of dollars over the life of the loan.
At this point, many first-time buyers will want to find a real estate agent to help them with their home search. Real estate agents help buyers find and purchase homes in their local communities, and many specialize in helping servicemembers. They can shorten the time you spend looking for homes, and coach you through the offer and counter-offer process. You can ask your AMS Military Mortgage Advisor, a licensed mortgage loan originator, to provide a short list of agents to get you started.
You can also go online and search on “military Realtors®” and read through their websites. When you find a few that seem interesting, contact them and ask if they specialize in any niche, how they like to communicate, and about their credentials. By specializing in certain niches, real estate agents find clients faster and deliver better results. The title of Military Relocation Professional (MRP), is a designation from NAR, indicating the agent has certain credentials that may enhance your homebuying experience.
Related: Does My Credit Score Impact My Interest Rate?
Working with Your Agent and Lender
Once you’re ready to tour homes, your real estate agent may advise you to get pre-qualified or pre-approved. For a pre-qualification, a lender will ask about any previous homeownership and your income, assets and debt to get a sense of whether or not you would qualify for the loan and how much. This conversation could happen over the phone or in person, and you’ll probably get an answer the same day.
A pre-approval is a different process that takes a day or two and may include an interest rate lock.
A pre-qualification or a pre-approval letter does not guarantee you’ll get a loan from that lender. You’ll still have to submit a complete application and go through the underwriting process when you’ve made an offer on a home. You also are not under obligation to use the lender — you can work with any lender you choose. Please keep in mind these letters and the process may vary due to state laws and regulations. Be sure to ask your lender and real estate agent for details.
During your home search, your real estate agent should guide you to properties that meet your buying criteria and are in your price range and they should help you write the offer. You’ll want to open and respond to texts, emails or calls from your agent right away, so you can move quickly. If you are overseas, this might mean reviewing listings from your agent at night, and providing a family member or friend back home with a Power of Attorney (POA) in case documents need to be signed in-person on your behalf.
If your offer is accepted, you’ll put your down payment money into an escrow account and move forward with any inspections you’ve requested as part of your offer. An escrow agent will schedule the closing when you sign the final paperwork and get your keys!
Related: 3 Ways to Save Faster to Buy a Home in 2024
Getting Expert Advice
Home loan experts at AMS work with homebuyers (and often sellers) daily, fielding questions about local home prices and interest rates and ensuring homeownership is a financially beneficial move for them. As a rule of thumb you should spend no more than 30% on housing costs — as a renter or homeowner — otherwise you are considered to be “cost-burdened.”
When it comes to helping you plan your next move, whether it’s to buy your first home or downsize to a home for retirement, you can count on us to be here for you.
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 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!