Decisions about buying and selling a home are almost always going to have major financial repercussions. For active-duty service members who are frequently uprooted, those deliberations become even more complicated.
As you may not be staying in one place for very long, it becomes critical to think through the long-term consequences of buying a home. It’s also important to be aware of special programs that can help you get the most home for your money.
- Active-duty personnel typically have on- and off-base housing options, with the latter providing greater flexibility but also necessitating a commute.
- Those who choose private housing can apply their Basic Allowance for Housing to rent or a mortgage payment.
- Because service members often face the prospect of receiving transfer orders, it’s important to weigh the long-term impact of purchasing a home versus renting.
Military families have several options when it comes to finding a home. While off-base housing often provides more options to meet your needs, you also may find yourself on the hook for some of the costs. If you buy a home, then you’re responsible for mortgage payments when you transfer out, unless you can sell it. Conversely, government-provided housing typically offers greater convenience and simplicity, but at the cost of flexibility.
Generally, it’s a good idea to check in with the installation’s housing office to review your options. Here are some common living arrangements that may be available:
- Government-Owned Base Housing: These units within the military installation are owned by the U.S. Department of Defense. Residents have rent and utilities covered by the military.
- Privately Owned Base Housing: In recent years, the Department of Defense has started partnering with private developers to create housing on its bases. The home itself is owned and managed by a private company. Service members receive a Basic Allowance for Housing (BAH) to help cover the cost of rent or a mortgage. If you have part of your allowance left over, you can use it to help cover the cost of utility bills.
- Off-Base Housing: Some families simply want housing that they can’t find on the base or prefer to raise their children in a different environment. If so, you can buy or rent properties outside of the base using your BAH. However, most expenses beyond your allowance have to be paid out of pocket.
To Buy or Not to Buy?
Active-duty service members who opt for a private residence receive a BAH whether they’re renting or buying a home. How much you get each month depends upon where you’re living, your pay grade, and your dependency status. You can project your BAH by using the housing allowance calculator on the Defense Travel Management Office website.
When you’re looking at monthly payments, buying a home often looks like a better option than renting. Still, that decision becomes more complicated for military personnel who may receive transfer orders in a short amount of time. Unless you’re fairly confident that you’ll be in the home for three to five years, it can be difficult to build enough equity to cover closing costs when you buy—typically 2% to 5% of the home’s value—plus the cost of eventually selling the home.
Selling costs alone can be steep. If, for example, your home goes for $300,000 and you’re paying your agent a 6% commission, then you’re out $18,000 just for the real estate agent’s services. And that doesn’t even cover repairs or other expenses that you may have to incur to get the house or condominium 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 that service members probably want to think about when they’re starting the next phase of their military career.
Getting a Mortgage
Mortgages from the U.S. Department of Veterans Affairs (VA) are some of the most attractive home loans on the market. Because the government provides mortgage insurance to lenders who offer VA loans, you don’t have to add private mortgage insurance (PMI) to your payments. What’s more, qualified borrowers can get a mortgage with no money down.
Don’t let the name fool you—these loans aren’t just for past service members. Active-duty military personnel, including those in the reserves, with at least 90 days of continuous service can receive the certificate of eligibility that you need to apply for a VA mortgage. You also have to meet the lender’s income and credit guidelines, 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 put toward a down payment, then it’s worth comparing these government-backed mortgages with other loan options.
Upfront fees on Fannie Mae and Freddie Mac home loans changed in May 2023. Fees were increased for homebuyers with higher credit scores, such as 740 or higher, while they were decreased for homebuyers with lower credit scores, such as those below 640. Another change: Your down payment will influence what your fee is. The higher your down payment, the lower your fees, though it will still depend on your credit score. Fannie Mae provides the Loan-Level Price Adjustments on its website.
Difficulty Selling Your Home
What if you get transfer orders and find yourself having trouble selling the home that you recently 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 accrue equity and, if you live where there’s a strong rental market, then you may even bring in residual income after making your mortgage payments.
The potential downside is that you’ll have the stress of dealing with renters who may live hundreds of miles away. Landlords often hire property management firms to take care of tenant matters, though that means you’ll have to add their fee to your projected costs. Remember that there’s always a risk that you’ll have to go a few months between renters, so you should make sure that you’re financially prepared for that possibility.
If renting out the home isn’t possible and you’re falling behind on your payments, then you’ll want to talk to your loan servicer to explore your options, including a short sale or a deed in lieu of foreclosure. The latter transfers the home’s title to the lender in exchange for releasing you from your loan. If your loan is owned by Fannie Mae, you can explore possible solutions on its web page for military personnel. Those with a Freddie Mac-owned home can review possible remedies on its foreclosure relief options page.
Popular home-selling scams that target service members include fake home listings on reputable websites by illusory real estate agents.
Avoiding Potential Scams
Unfortunately, scams targeting service members looking for new housing are rampant, so it’s imperative to research the authenticity of websites where properties are listed and the identity of Realtors and other housing experts whom you meet online.
In one common ploy, criminals create fake home listings, sometimes on websites that otherwise have a solid reputation. They’ll offer below-market rates or cite military discounts to lure unsuspecting service members. When you find a property that you like, they’ll typically ask for funds to be sent electronically to hold it for you. Only later do victims realize that both the identity of the person they met online and the property itself were illusions.
Another scam goes after homebuyers who are having a hard time keeping up with their mortgage payments. The perpetrators may post an ad or distribute flyers touting their ability to help you avoid foreclosure. They’ll then ask for a fee that has to be sent electronically and promptly vanish once you’ve sent it.
You can reduce your chances of falling prey to a scam by avoiding ads that appear too good to be true and steering clear of individuals who request wire transfers or other suspicious forms of payment. You can also look for rentals on the Department of Defense’s own Automated Housing Referral Network website.
The Bottom Line
Decisions about how to secure housing and sell a home can be stressors for military families who are regularly on the move. Fortunately, there are numerous resources for members of the armed services that can help you make the process more manageable.