Military Family Home Loan Q&A with Lending Officers
by Lizann Lightfoot - September 20th, 2021
PCSgrades met with two military lending experts to address your questions and concerns with the home buying process. Are you stuck in PCS housing limbo? Then this is for you!
Your military family home loan questions answered
Is it safe for military families to go under contract with PCS orders?
It depends on your financial situation. Can you cover a double housing payment? Work with a military-friendly real estate agent who can bring this question up front to lenders. You can request extensions on contract or add in a contingency for payments depending on PCS orders. You don’t close until 60-90 days after a home sale.
Don’t go under contract without hard orders. If you know you will be moving to a marketplace, it’s just a question of when. So then go ahead and move forward. But if orders are uncertain and you don’t even know for sure if and where you will move, then make sound financial choices and don’t put your family at risk until things are more certain.
Use this time to do a financial review and get the background credit check started so that you’re ready to buy in a few months.
Is there now a 700 credit score minimum for getting a home loan?
Every lender is different and makes their own set of guidelines for lending. When lenders make adjustments to their profiles, don’t mistake it for industry-wide change. It’s beneficial to shop around and know that every lender is different.
These changes are temporary to protect lender interests. Not every lender is making those changes. None of the changes are mandated by the VA. If you are currently under contract and your credit score is under 700, make sure your lender can still work with you if you go under contract. Call them and confirm whether they have made any changes. Things change almost daily. Be proactive and don’t assume that because you are pre-approved you will qualify today. If you aren’t pre-approved now, you might be able to get approved in a month or two. Eventually, things will get back to normal.
If a family goes under contract, what happens if their PCS orders change?
A lot of lenders have the perspective that if you are already in the system and have an application date, then you get grandfathered in under old guidelines. Communication is key. Do not assume that no news is good news. Things are volatile in the housing market. Talk to your loan officers regularly.
You can be under contract and not have done any lender paperwork, but that’s not advised. Make sure you get pre-approved or get your paperwork processed before you sign a housing contract. Most lenders are honoring the guidelines on the application date. If your interest rate is locked in, then most are honoring the locked in rate, but a few lenders are throwing up their hands and saying they can no longer honor a loan. Working with the right company is essential right now. If you’re looking for cheap, sometimes you end up getting cheap.
The VA does not have a debt/income ratio right now. Do you anticipate that changing?
The VA has currently not made any changes to their guidelines. But each individual lender looks at the temporary guideline changes to protect their self-interests. VA Home Loan benefits operate on residual income. They make sure people have enough money at the end of the month to afford to live in a house after their bills are paid. That keeps the default rates extremely low, especially for active duty military. Since the military is still getting paychecks, they will not be severely impacted right now. If the spouse is unemployed or losing income, that could be a factor.
So many military families are carrying two mortgages right now. Is there any resource for them?
If you can afford to make your payment, you need to make it. Forbearance is a buzzword right now and there is a lot of misinformation. Forbearance is not free. It has long-term implications. It is a tool for those who aren’t able to make payments. Just because you don’t have to make the payment now doesn’t mean they won’t take the money later. It’s critical to communicate with your lender. If you go into forbearance for 90 days, this will eventually impact your credit report. For active duty military, this can result in revoking your security clearance.
During the pandemic, the government allowed for a 6-month forbearance without many questions asked. You can request it to modify your mortgage because you are going through financial hardship. The money won’t be forgiven though: it must be paid back. After the 6 months, you would have to pay back the balance. Even after paying it back, it will remain on your credit report and impact future loans, clearances, and purchases. You can request a payment plan to spread it over the next 12 months, or it can be added onto the back end of your mortgage–up to 30 years from now. Take all of that into consideration before you go into forbearance.
Even if you are a renter– make your payments if you are able to. Your payment schedule will be considered for future home purchases, so not paying now will impact your ability to by a home later.
What should a military family do now if they were thinking about buying a home? How can they prepare?
What you can do right now is prepare yourself to buy a home: talk to a real estate professional and a lending agent. Get your paperwork in order so you have it all ready once you are actually able to move. Whether you wanted it or not, you now have extra time to gather your paperwork, educate yourself, ask questions, and be prepared. Very soon, the market will be incredibly competitive, and offers will need to be written and accepted within hours in some markets.
If you’re planning to rent out your current home, this gives you a chance to think through being a landlord. With the high numbers of forbearances, it may not be a great time to be a landlord. If your tenant puts their rent in forbearance, consider the impact it will have on you financially. This may tip the scale towards selling your home instead of renting it out now.
Lizann Lightfoot, the "Seasoned Spouse" is a professional writer and speaker for the military community. After two decades with her service member, her family has been through 7 deployments and 6 PCS moves. Lizann has raised 5 children and published several books for military families. Her most recent book is "Open When: Letters of Encouragement for Military Spouses" published Sept 2021 by Elva Resa. You can find Lizann's articles and resources at SeasonedSpouse.com
