Should Military Homebuyers Choose a 15-Year or 30-Year Amortization?

How can those in the military become homebuyers? Not everyone wants a 30-year mortgage, even though it is a popular choice. Homebuyers may also want to look into another alternative.

There are benefits and drawbacks to both 15- and 30-year amortization scenarios. Since buying a home is one of the most expensive decisions the average person will make in their lives, it pays to think over how to best finance a home mortgage loan. Military personnel may want to review which amortization choice will suit their needs and budget. Read on to learn about the pros and cons of 15-year and 30-year mortgages for military personnel.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

Pay Less per Month with a 30-Year Mortgage Loan Repayment Plan

Active duty members and those who have served will want to consider their financial situation when becoming first-time home buyers. A 30-year amortization has become the classic option because monthly payments are lower than a 15-year mortgage loan. Low monthly payments can make it easier to make high-ROI upgrades to a home while still paying down a mortgage loan. A lower monthly payment can offer comfort during challenging periods and allow one to continue building a financial cushion to handle any potential setbacks.

Keep in mind that loan terms and repayment length can impact a potential borrower's debt-to-income ratio. Another advantage for some may be that choosing a 30-year term can make it possible to afford a more expensive home. On the downside, however, when paying back a 30-year mortgage loan, the borrower will pay more interest over the life of a loan when compared to the 15-year alternative. Sometimes, interest rates affect a property's overall value.

Choose 15-Year Amortization to Own a Home in Less Time

Some borrowers like the idea of paying off their mortgage loan in 15 years. With this option, a borrower can pay down the principal of the loan faster. Monthly loan payments will be higher than when stretched out over 30 years. Also, the bank will receive significantly less interest on the loan over the period of repayment. The good news is that the homebuyer will be own their home much sooner.

Depending on the buyer's situation, it is possible to change loan terms and go from a 30-year amortization to a 15-year amortization after making timely payments over a set period of time. The amount of the down payment and the current amount of equity in a home are often factors in a bank's decision.

Other Home Buying Considerations

There are closing cost fees associated with buying a home. Closing costs may run up to $5,000 or more, depending on the terms of a loan. First-time buyers may want to set aside funds for:

• Appraisals
• Recording fees
• Title insurance
• Origination fees and notary fees

There are additional expenses to consider when owning a home. When choosing a 15- or 30-year amortization, consider that the mortgage loan borrower will still need to pay:

• Insurance
• Property taxes
• Potentially HOA

Also, a homeowner is responsible for maintenance. This may be particularly important for first-time homebuyers not used to budgeting for a new roof, boiler, or another large home repair. Borrowers may want to create a budget to address the costs of homeownership, whether the dwelling is a traditional single-family home, condominium, or another type of residence.

Shop Around for Better Mortgage Loan Terms

Homebuyers may want to try a conventional mortgage loan from their lender or buy a house with cash, but veterans and active-duty members have additional options. It can be worth looking into a VA loan to allow for zero down payment and no private mortgage insurance (PMI). PMI is often required on a conventional loan product until sufficient equity is established in a home. This expense does not go toward paying off a mortgage loan. A VA loan can make homeownership more affordable, allowing borrowers to redistribute their funds to other areas. Speak with a trusted lender to understand more about amortization and mortgage loan options.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.