Home buying and selling decisions will almost always have significant financial implications. For active-duty military personnel who are frequently uprooted, these deliberations become even more complicated.
Since you may not be staying in one place for very long, it becomes essential to think about the long-term consequences of buying a home. It is also important to know about special programs that can help you get the best value for your money in your home.
Key points to remember
- Staff on active duty generally have on-base and off-base housing options, the latter offering greater flexibility but also requiring commuting.
- Those who choose private accommodation can apply their Basic Housing Allowance (BAH) to rent or mortgage payment.
- Since military personnel are often faced with the prospect of receiving transfer orders, it is important to weigh the long-term impact of buying a home versus renting.
Military families have several options when it comes to finding housing. While off-base housing often offers more options to meet your needs, you may also find yourself bearing some of the costs. If you buy a home, you are responsible for the mortgage payments on the transfer, unless you can sell it. Conversely, government-provided housing generally offers more convenience and simplicity, but this comes at the expense of flexibility.
As a general rule, it’s a good idea to check with the facility’s housing office to review your options. Here are some common lifestyles that may be available:
- Basic government-owned housing—These units within the military installation belong to the Ministry of Defense. Residents have rent and utilities covered by the military.
- Basic private accommodation—In recent years, the Ministry of Defense has started to partner with private developers to create housing on its bases. The house itself is owned and managed by a private company. Military personnel receive a Basic Housing Allowance (BAH) to help cover the cost of rent or a mortgage. If you have a portion of your allowance left, you can use it to cover the cost of utility bills.
- Non-base accommodation—Some families simply want housing that they cannot find on the base or prefer to raise their children in a different environment. If so, you can buy or rent properties off base using your BAH. However, most of the expenses beyond your allowance must be paid out of pocket.
To buy or not to buy?
Active duty military personnel who opt for a private residence receive a BAH whether they rent or buy a house. The amount you receive each month depends on where you live, your level of earnings and your dependency status. You can project your BAH using the Housing Allowance Calculator on the Defense Travel Management Office website.
When considering monthly payments, buying a home often seems like a better option than renting. However, this decision becomes more complicated for military personnel who can receive transfer orders in a short period of time. Unless you’re pretty sure you’ll stay in the home for three to five years, it can be difficult to build enough equity to cover closing costs when you buy (usually 2-5% of the home’s value). house), the higher the cost of ultimately selling the house.
Selling costs alone can be high. If, for example, your house costs $ 300,000 and you pay your agent a 6% commission, you are losing $ 18,000 just for the services of the realtor. And that doesn’t even cover any repairs or other expenses you might have to incur to get the house or condo on the market. Plus, you’ll have to worry about making mortgage payments if you can’t find a buyer when you leave town, the last thing military personnel are likely to want to think about when they enter the next phase of their military careers.
Get a mortgage
Mortgage loans from the Department of Veterans Affairs (VA) are among the most attractive home loans on the market. Since the government provides mortgage insurance to lenders who offer VA loans, you don’t need to add private mortgage insurance (PMI) to your payments. Plus, eligible borrowers can get a mortgage without a down payment.
Don’t be fooled by the name, these loans aren’t just for ex-military. Active duty military personnel, including those on reserves, with at least 90 days of continuous service may receive the Certificate of Eligibility (COE) you need to apply for a VA mortgage. You should also follow the lender’s income and credit guidelines, just as you would with other loan programs.
VA loans don’t offer the lowest interest rates for every buyer, but if you don’t have a lot of money to spend on a down payment, it’s worth comparing these government guaranteed mortgages with other loan options.
Difficulty selling your house
What if you end up receiving transfer orders and have trouble selling the house you just bought? You have a few options.
One is to hang on to it as a rental property. The upside is that you’ll have more years to build equity, and if you live where the rental market is strong, you can even generate residual income after you’ve made your mortgage payments.
The flip side is that you will have the stress of dealing with tenants who can live hundreds of miles away. Landlords often hire property management companies to take care of tenant affairs, although that means you will have to add their fees to your projected costs. Keep in mind that there is always a risk that you will have to spend a few months between tenants, so you need to make sure that you are financially prepared for this eventuality.
If renting the home isn’t possible and you’re behind on your payments, you’ll want to speak to your loan officer to explore your options, including a short sale or deed in lieu of foreclosure. The latter transfers the title of the home to the lender in exchange for the release of your loan. If your loan belongs to Fannie Mae, you can explore the possible solutions on her webpage for military personnel. Those who have a home owned by Freddie Mac can review possible remedies on his foreclosure relief options page.
Popular home sales scams that target service members include fake home listings on reputable websites by deceptive real estate agents.
Avoid potential scams
Unfortunately, scams targeting military personnel looking for new housing are commonplace. It is therefore imperative that you research the authenticity of the websites on which the properties are listed and the identity of the realtors and other housing experts you come across online.
In a common ploy, criminals create fake real estate ads, sometimes on websites that otherwise have a solid reputation. They will offer below market rates or quote military discounts in order to attract unsuspecting military personnel. When you find a property you like, they usually request that funds be sent electronically to hold it for you. It wasn’t until later that victims realized that the identity of the person they met online and the property itself were illusions.
Another scam targets homebuyers who are struggling to keep up with their mortgage payments. Authors may advertise or distribute flyers touting their ability to help you avoid foreclosure. They will then ask you for a fee which needs to be sent electronically and will quickly disappear once you send it.
You can reduce your chances of being scammed by avoiding advertisements that sound too good to be true and avoiding people who request wire transfers or other suspicious forms of payment. You can also search for rentals on the Department of Defense Automated Housing Referral Network (AHRN) website.
The bottom line
Decisions about how to get housing and how to sell a home can be stressors for military families who travel regularly. Fortunately, there are many resources for members of the military that can help you make the process more manageable.