Military: Buying a House, Best Ways to Save/Get Deals/Use Benefits
For the majority of families, the home is the largest investment ever made. But buying a home is additionally complicated for families in the military, who due to the nature of their careers tend to move quite frequently and at times on very short notice. On the other hand, service men and women have access to some very attractive tax breaks and special mortgage programs to assist them in affording a good home.
It therefore may make sense to take maximum advantage of some of these benefits and make sure you maximize any potential real estate investment.
Should You Rent A House Or Buy A Home?
Service members benefit from a tax-free housing allowance that covers part or all of their monthly mortgage payment or rent. If you are the owner of a home, you are entitled to deduct 100% of the mortgage interest, whether you are using tax-free money to pay for it or not. Despite all these incentives, it still could be a tough decision whether to buy or rent when you could be stationed in that locality for just a couple of years.
As you decide on the amount you can afford to pay for a house, be careful in case you intend to leave the service soon. This is because once you have left the armed forces, you will be no longer qualified to receive the tax-free housing or mortgage allowance. It may become necessary for you to start paying income taxes, perhaps for the very first time in your life.
The rent or mortgage payments could be become tricky if you don’t have a stable civilian job or the possibility of a layoff looms. Always have these considerations in your mind as you calculate your expenses. Plan on building up a more substantial bigger emergency fund just in case you need to pay home bills for several months when you are temporarily out of work.
Before Buying a House
I would strongly recommend renting a home at least for a couple of months after being transferred to a new area. This gives you ample time to learn more about the neighborhoods and also to identify the best location where to buy a home, especially if you are likely to live in a specific area for at least 3 years. Keep in mind that your home will most likely be steadily appreciating in terms of value.
In addition, I would recommend that you don’t exceed the amount you spend on buying a house to over 30 per cent of your net pay. This way, you will not be struggling to cover your routine monthly expenses. Remember to include in your home cost calculations items such as property taxes, utilities and maintenance as well as homeowners insurance.
At a time when property prices were quickly rising, a big number of service members purchased homes even when they knew they could be in an area for a relatively brief duration with the anticipation that they possibly could dispose the same for a good profit, or have it rented out whenever they had to move on due to transfers. However, these are not always reliable indicators and it’s wise to be cautious.
Veterans Administration (VA) Loans
VA loans are provided by private lenders and their rates of interest may vary. However, the VA Benefits from such loans can be quite valuable, especially for veterans who may lack the money required for making the 20 per cent down payment. This is a group that otherwise would have found it hard to qualify for a standard loan, forcing them to purchase privately offered mortgage insurance, usually at highs ranging between 0.5 and 1% of the annual loan amount.
Whether you opt to take the standard or Veterans Administration loan will also be dependent on the circumstances of your family as well as other uses to which you could potentially use your cash.
Personnel on active-duty military, National Guard members, reservists and certain veterans qualify for the special Veterans Administration loans. This makes it possible for you to borrow money up to $417,000 that requires no private mortgage insurance or down payment.
Basic Allowance for Housing (BAH)
Besides the VA Benefits, another option that is available for active servicemen and women is the Basic Allowance for Housing or BAH. It is good to keep in mind that your BAH varies depending on the estimated cost of living for the location you are currently serving from. In case you get transferred to a new area, your Basic Allowance for Housing may move up or even down compared to your current rate. For exact details on the applicable rates, you could visit the website of the Department of Defense.
Pricing and Other Market Considerations
As a real estate buyer, besides the down payment and mortgage, you must consider several other factors such as:
- Home price compared to the health of the local market
- The going average prices for homes in the locality
- The local rate of foreclosure
- Home ownership association fees
- Real estate taxes
- Insurance cost.
These all have the potential of taking your monthly home cost far beyond what you had imagined. As you plan on buying a home, also think about the area’s general location, local schools, and the specific neighborhood. Identify what’s most essential for you and proceed accordingly.
If you happen to be lucky enough to get posted in an area where you might desire to retire after your time in the military, you may want to consider several things.
Among them are:
- The taxation rates in that state
- Handling of VA benefits
- Access to Veterans Administration medical facilities.
At the moment, these might not appear to be of any significance, but they assume great importance if during your retirement, you are living on a fixed income and perhaps you require regular quality medical care.
Let me remind you that money isn’t really everything. At times what would appear to make lots of sense in your family balance book might not make much sense in your real life and could completely ruin even the best of family plans. Nevertheless, the decision whether to rent or buy a home is a very personal thing although a number of external work or career related factors come into play.
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