Methods to Homeownership for Military Families
For a good number of families, becoming a homeowner will be their biggest investment. Now if you factor in military families who have to move a lot, home buying gets a little more complicated. Fortunately, special tax rules were designed to help military families who decide to rent out their homes when they are transferred to their next duty station. However, military personnel have the advantage of exclusive goverment mortgage programs and tax incentives to assist them in purchasing a home.
With that being said, should a military member buy or rent?
Armed forces members enjoy a tax-free housing allowance to take care of all or a portion of their rent or mortgage payment every month. Additionally, for those who are homeowners, they are able to subtract 100% interest on the mortgage, even if it’s being paid for with tax-free money. However, the decision is still not easy to buy a house or rent when you know you’ll be moving to a different location in the next few years.
During the period when home values were increasing at a rapid pace, lots of people in the military still purchased homes already knowing their stay would be brief, anticipating that in the future they could sell for a profit (or have a tenant pay rent that is more than the mortgage payment) if they were transferred.
Some other items to remember that financial planners recommend are to keep your overall housing costs (includes homeowners insurance, property taxes, utilities) to be under 35% of your net paycheck. By doing so, monthly costs should not become a burden down the line. Just use our mortgage calculators to help you figure out what you can afford or call our number above.
If you’ll be leaving the military soon and become a civilian, be very mindful when determining how much house you can afford. That tax-free housing allowance won’t be available to you anymore, and state income taxes could become factor for you, and job stability is not guaranteed anymore. So, it is wise to have a good-sized emergency fund to pay the bills for at least a six months. Having no plan could be a plan for failure. Remember, hard times could hit not only you but also your tenant should you be transferred and decide to rent out the home.
Members of the Armed Forces and National Guard, along with select veterans, and reservists, are eligible for VA loans by the Veterans Administration. The mortgage limits are typically $417,000 but in high-cost counties, which include Orange, LA., San Diego, the maximum limit is $625,500 with zero down payment and no mortgage insurance. UPDATE: As of 2018, the new limits are $453,100 and up to $679,650 in high cost counties.
VA loans are originated by state licensed mortgage lenders. For more information about who is eligible for a VA loan and the corresponding rules, visit the Department of Veterans Affairs web site.
Opting for the no-down-payment method to buy a house does have a small disadvantage if home values decline. If that happens, you could find yourself in the unfavorable position of being owing more on your home than it is worth, or upside down. If you make some sort of down payment, it will guard against that situation.
And once again, as mentioned previously, build up an emergency fund before or after you buy your home. Tough times occur not only in military life but also in the places you rent or own. The emergency fund ends up being really important if you have to move to a new city and don’t have the choice of going back to your old home.
