Buying and selling a home will almost always have significant financial effects. Those decisions become even more complicated for active-duty service members who are frequently relocated.
It is crucial to consider the long-term effects of buying a home because you might not stay in one place for very long. It’s also crucial to be aware of specific initiatives that can give you the best value for your money when buying a home.
KEY LESSONS
- Both on- and off-base housing options are typically available to active-duty personnel, with the latter offering greater flexibility but also requiring a commute.
- Those who opt for private housing can apply their rent or mortgage with their Basic Allowance for Housing (BAH).
- Consider the long-term effects of buying a home versus renting because service members frequently face the possibility of receiving transfer orders.
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Options for Housing
When it comes to home options, military families have many choices. Off-base housing frequently offers more options to suit your needs, but you might also have to foot some of the bill. If you buy a home, you will be liable for the mortgage payments when you leave, unless you are able to sell it. However, flexibility is typically sacrificed in favor of greater cost and convenience when housing is provided by the government.
In general, it’s a good idea to review with the housing office of the installation to go over your options. Here are some typical housing options that might be available:
Government-owned Base Housing: The U.S. Department of Defense is the owner of these residences on the military base. The military pays the residents’ rent and utilities.
Privately Owned Base Housing: In recent years, the Department of Defense has begun working with private builders to build housing on its bases. A private business owns and operates the actual residence. A Basic Allowance for Housing (BAH) is provided to service members to cover with the cost of rent or a mortgage. You can use any extra cost from your allowance to help cover your utility bills if you have any.
Off-Base Housing—Some families just need housing that isn’t available on the base or would prefer to find up their kids somewhere else. If so, you can use your BAH to rent or buy homes outside of the base. The majority of additional expenses, though, must be covered out of pocket.
To Buy or Not to Buy?
Whether renting or buying a home, active-duty service members who choose a private residence are eligible for a BAH. Your pay grade, where you live, and whether you are dependent on others will all affect how much money you receive each month.
By using the housing allowance estimator on the Defense Travel Management Office website, you can forecast your BAH.
When comparing monthly payments, buying a home frequently appears to be a better choice than renting. However, for military personnel who might soon receive transfer orders, that time becomes more complicated. It can be challenging to build enough equity to cover closing costs when you buy—typically 2 percent to 5 percent of the home’s value—plus the cost of eventually selling the home unless you’re reasonably certain that you’ll be in the home for three to five years.
Even just selling costs can be high. If, for instance, your home sells for $300,000 and you’re paying your agent a 6 percent commission, you’ll be out $18,000 just for the real estate agent’s services. And that doesn’t even include any repairs or additional expenses you might have to cover to get the house or apartment ready for market. The last thing that service members likely want to think about when they are beginning the next phase of their military career is having to worry about making mortgage payments if you can’t find a buyer when you leave town.
Purchase of a Mortgage
One of the most alluring home loans available is one from the U.S. Department of Veterans Affairs (VA). You do not need to pay for private mortgage insurance (PMI), as the government insures mortgages for lenders who offer VA loans. Additionally, eligible borrowers can obtain a mortgage with no down money.
These loans aren’t just for former service members, despite what the name might suggest. The certificate of eligibility (COE) that you require to apply an application for a VA mortgage is available to all active-duty military personnel, including those in the reserves, with at least 90 days of continuous service. As with other loan programs, you must also meet the lender’s income and credit requirements.
It’s important to compare VA loans with other loan options if you don’t have much money to put down as a down payment because they don’t always have the lowest interest rates for buyers.
Problems Selling Your home
What happens if you receive transfer orders and discover that selling to find the home you just bought is difficult? You have several options.
The first is to keep it as a rental property. The advantage is that you’ll have more time to build equity and, if you live in an area with a healthy rental market, you might even generate extra income after paying your mortgage.
The drawback could be the stress of managing renters who might live hundreds of miles away. To handle tenant issues, landlords frequently hire property management companies; however, you will need to factor their fee into your projected costs. You should make sure that you are financially prepared for the possibility that you may have to wait a few months between renters because there is always a chance that this will happen.
In the event that renting out the home is not an option and you are having financial payments, you should speak with your loan servicer to explore your options, which may include a short sale or a deed in lieu of foreclosure. The latter releases you from your loan in return for giving the lender the title to your home. On Fannie Mae’s website for military personnel, you can explore into potential solutions if your loan is owned by the company.
On its page for foreclosure relief, Freddie Mac offers those with a home owned by the company a chance to review potential options.
Popular home-selling scams that prey on service members include phony home listings posted by fictitious real estate agents on reputable websites.
How to Avoid Potential Scams
Unfortunately, there are many scams that prey on service members looking for new housing, so it’s crucial to check the identity of websites where properties are listed as well as the identities of Realtors and other housing experts you meet online.
One common scheme involves criminals creating phony real home listings, sometimes on well-known websites. To entice unwary service members, they may offer rates below market value or mention military discounts. They typically ask for money to be sent electronically to hold a property for you when you find it that you like. Only later do victims realize that both the property’s identity and the person they met online were deceptions.
Those who are having time making their mortgage payments are the target of another scam that targets homebuyers. The perpetrators might publish an advertisement or hand out flyers claiming to be able to save you from foreclosure. They’ll then demand fee, which must be sent electronically, and disappear as soon as you send it.
By avoiding ads that seem too good to be true and avoiding people who ask for wire transfers or other dubious forms of payment, you can lessen your chances of becoming a victim of a scam. Additionally, you can search for rentals on the Automated Housing Referral Network (AHRN) website owned by the Department of Defense.
The Bottom line
For military families who are frequently on the move, decisions about how to find housing and sell a home can be stressful. Fortunately, there are lots of resources available to military members that can make the process easier for you.
