Buying A Home In The Military

It might seem more inaccessible than ever right now (thanks, inflation!) but owning your home is still a big part of the American Dream, maybe the biggest part.

Why? Because home ownership continues to be the key to improving your net worth and establishing financial security for your family’s future. Trouble is, too many people just can’t afford it these days. That’s true in the general population, and it applies as well to active-service personnel.

But affordability isn’t the only reason buying a home can be problematic for members of the military. Home ownership is an investment, and like any other investment, it comes with risks, some of which are magnified for active-duty personnel. Servicemembers need to pay particular attention to the volatility of the real estate market where they are stationed, as well as to how long they can expect to be there before they are re-deployed. Buying a home can be even more fraught for military personnel than it is for civilians.

The good news is the military has assistance programs for a number of housing options, including home ownership and rental property. It’s important to weigh the financial advantages and disadvantages of military housing vs. off-base housing. In fact, deciding to live on-base or off-base is probably the first step in determining whether buying a home is the right move.

A home purchase can be a great use of your resources if you are in the military. But before you buy, make sure home ownership lines up with your long-term goals. It might not be easy, but the American Dream doesn’t have to be out of reach for you.

Housing Options for Military Families

The bit of advice we’re going to give you next shouldn’t surprise you, but it needs to be said: If you’re thinking about buying a home, do the research. Explore the kinds of help the military can provide you and assess the impact against your personal finances and future plans. Think of it as (dare we say it?) home work.

Here are some of the options military families have for housing, and what sort of assistance is available for them:

• Purchasing a home using a VA loan. Since World War II, the military has tried to make it easier for active-duty personnel, veterans and their families to own their homes through the VA loans. Though it is issued by a private lender, a mortgage with a VA loan is guaranteed by the U.S. Department of Veterans Affairs and requires no down payment or monthly mortgage insurance. There are several types of VA loans available, and the application process is reasonably simple.
• Living on-base, in government-owned housing, with the cost of rent and utilities covered by the military. The Defense Department owns and maintains housing available to families on military installations, although the percentage of such government-owned on-base housing options has dropped in recent years. In addition to the cost-savings, living in government-owned housing provides proximity to amenities such as a base commissary and gym, as well as to other military families. The military also provides traditional rent-free on-base barracks for single or unaccompanied members of the Armed Forces.
• Living on-base, in privately-owned housing, with service members receiving a Basic Allowance for Housing (BAH) to cover rent costs. Most on-base family housing in the continental U.S. these days is built, owned and managed by private companies rather than the government. The private companies take care of utilities, repairs and upkeep, and the military provides servicemembers with a Basic Allowance for Housing (BAH) to put toward rent.
• Living off-base, in privately-owned housing, with service members receiving a Basic Allowance for Housing (BAH) to cover rent or mortgage costs. Servicemembers can use their BAH for off-base housing as well, whether they are renting or buying their home. But they will be responsible for out-of-pocket expenses such as utilities and repairs that exceed the amount of their BAH.

Should You Buy a Home in the Military?

It would be nice if there was a one-size-fits-all answer to the should-I-buy-or-should-I-rent question you’ve been asking yourself. Sorry. That nicety isn’t going to happen here.

No two members of the military will bring identical circumstances (financial footing, deployment future, family considerations, etc.) to the buy-or-rent decision. What’s right for the next person might not be right for you.

However, there are several general pros and cons to buying a house in the military, which we will outline here. They should help move your thinking along if you apply them to your particular situation.

Pros of Buying a Home in the Military

We’ve already established that home ownership can play a big role in establishing your financial independence and net worth. That’s an obvious place to start when you’re looking for reasons to buy, even if it comes with risks.

Here are some other factors in favor of buying a home while on active duty in the military.

• Availability of VA Loans. Because they’re guaranteed by the VA, they offer rates that are more attractive than conventional loans. Among the other benefits of VA loans, they usually don’t require a down payment or private mortgage insurance, their credit requirements generally are looser than conventional loans, and there is no fee if you pay off the loan early.
• The chance to establish stability for children. This works for you and your family if you know you’ll be stationed in one place for a significant period of time after you buy your home.
• Lower monthly payments. Depending, of course, on the size and terms of your mortgage, you could pay less per month than you would for a comparable off-base rental property.

Cons of Buying a Home in the Military

There are, of course, potential pitfalls. Primarily, they’re linked to the uncertainties of active duty in the military.

Among the downsides are:

• A need for a short-notice resale. The clock starts running as soon as you get word that you’re being redeployed or relocated. You won’t have much time to unload the home you’ve bought. That can present financial difficulties. If you aren’t able to sell it before you leave, can you keep up with the mortgage payments from your next location?
• Closing costs for your next purchase. The cost of selling your house once you’ve been redeployed can be greater than the costs associated with buying the next one, especially if you haven’t owned the house long enough to build much equity in it. You’ll be paying a commission to your real estate agent, and you’ll be responsible for whatever repairs and upkeep are necessary to make the home you’re trying to sell marketable for the next buyer.
• Long-distance landlord responsibilities. One option if you can’t sell the home you’ve left behind, is to rent it out. That provides income that will help with the mortgage, but it also creates administrative and bureaucratic burdens you must monitor from afar. You can hire a management company to deal with them, but it will cost you.

What To Consider When Buying a Home on Active Duty

As we’ve said, buying a house is an investment, perhaps the biggest personal investment you’ve ever made. But it’s more than that, too. It’s a major, life-changing decision, and you want to make sure you get it right. Here, then, are some of the most important issues military personnel should factor into their deliberations.

Length of Deployment at Base

One of the keys to making financial sense out of a home purchase is the ability to build equity in the home, which means increasing the difference between the value of your home and the amount you owe on your mortgage. That’s going to be hard to do if your deployment at your current base will be for two years or less after you buy. (The median length of time owners stay in their homes is 13 years, according to a study from the National Association of Realtors.)  If the military is going to move you soon, you won’t have much time to chip away at the debt.

If it appears the military will keep you where you are on a longer-term basis, here’s a related question to ask yourself: Is the location of your current base (the area in which you’re thinking about buying) where you and your family want to be after you leave the service?

The Average Cost of Housing

Playing the real estate market is a complicated game. But it’s a reasonably simple matter to figure out how well your income will work in the housing market near your base.

The average military salary is $51,584. Members in the bottom 10% of the pay scale make only $24,000 a year, while those in the top 10% make up to $108,000. It may be difficult to find affordable housing at anywhere but the top end of the military pay scale.

Too, it’s worth looking into whether real estate is ‘hot’ where you’re thinking about buying, meaning there are more people looking to buy than there are homes for sale. Check out open houses and see what kinds of crowds show up. Ask a realtor how often houses are attracting multiple offers soon after they go on the market.

If that’s the case, there’s a good chance that prices will be higher than the typical market value for a home, which doesn’t make for an ideal time to buy. A ‘hot’ market favors sellers rather than buyers. You’d much rather the market be ‘hot when you’re ready to sell your house.

Affordability Requirements

You’ll want to look into your VA Loan options first. They come with a zero-down payment, after all. Another study by the National Association of Realtors found that saving for the down payment was the hardest part of the process for 26% of first-time home buyers.

But just because your loan won’t require a down payment, doesn’t mean you can’t put some money down. If you can manage it, a down payment will lower your monthly mortgage payments and help you build equity.

But the down payment is just the start of how you should assess whether you can afford the home you’re thinking about buying. You’ll have a monthly mortgage bill to pay, so you’ll need some confidence that you have the resources to meet that obligation and have enough left over to live your life.

How much of that monthly mortgage, for example, will your Basic Allowance for Housing (BAH) cover? The primary factors a lender considers when determining how much credit to extend to you for a home purchase are your income, your debt and your credit score. So do the math.

Resale Potential

Look ahead. Know what possibilities and challenges might await you when it’s time to sell the home you’re about to buy. It’s almost impossible to predict where the real estate market will be in the future, but it’s important to weigh the risks to your homeownership investment.

Think about the reasons you like the house and try to imagine if the next potential buyer will be of a like mind.

Will it appeal to other servicemembers? Is it in a desirable location? Is it close to amenities such as shopping, schools and parks? Is the neighborhood developing? Does it have curb appeal? Will you be able to add value to the house with features such as solar panels or a remodeled kitchen before it goes back on the market?

Military Retirement

It’s likely that the older you get and the longer you stay in the military, home ownership will become more appealing and more possible. You might decide it’s finally time to put down some roots. You’ve moved enough. But before you buy, make sure a home purchase fits into your planning for retirement from the service.

Have you assessed how your finances will be affected by retirement? Have you thought about where you want to settle down? If retirement is going to include dramatic changes in your life and lifestyle, then you might want to be careful about buying a home in the here and now.