Home Buying Assistance Programs for Military Personnel

For many families, their largest investment is their home, however, home buying is especially complicated for military families who tend to move frequently and often with little notice. At the same time, service members have access to special mortgage programs and tax breaks to help them afford a home. Be sure you make the most of these special benefits and protect your real estate investment with the help of a financial professional.

Special tax rules are designed to help military families who decide to rent out their homes when they are transferred to their next duty station. Should you buy or rent? Members of the military receive a tax-free housing allowance to cover all or part of their monthly rent or mortgage payment. And if you own a home, you can deduct 100% of your mortgage interest, even if you’re paying it with tax-free money. Nonetheless, it can still be tough to decide whether to rent or buy a house when you may only be stationed in an area for a few years.

When home prices were rising quickly, many service members bought homes even if they only expected to live in an area for a relatively short period of time, with the hope that they could sell for a profit or rent it out for more than their monthly payments when they were transferred. Unfortunately, you cannot count on either outcome in this economy.

Military service members, veterans and their families have benefits programs to help them rent or buy homes with ease, however it is important to have some basic understanding of the options and

processes available. Here is a quick guide to the military programs to help buy, sell or rent real estate:

Military Real Estate Assistance Programs

The Basic Allowance for Housing (BAH)

The Basic Allowance for Housing (BAH) is a U.S. based allowance prescribed by geographic duty location, pay grade, and dependency status. It provides uniformed service members equitable housing compensation based on housing costs in local civilian housing markets within the United States when government quarters are not provided (there are other benefit programs for overseas housing).

Each person’s Basic Allowance for Housing (BAH) will vary depending on the cost of living in your location; if you move to a new area, your housing allowance may be more or less than you’re currently receiving. To check on the allowance for your rank and zip code, use the calculator at the Department of Defense Web site.

When deciding how much house you can afford, be particularly careful if you’ll be leaving the military soon. After you leave, you may not be eligible for the tax-free housing allowance anymore, you may have to pay state income taxes for the first time, and your income may not be as stable (a potential layoff or periods of unemployment become much more of a concern when you move into civilian employment). Keep these realities in mind when calculating your expenses, and build up a bigger emergency fund to help you pay the mortgage and bills for at least a few months if you or your spouse become unemployed.

VA Home Loans

The Department of Veterans Affairs offers help to active duty service members, Veterans, and eligible surviving spouses to become homeowners. The department provides a home loan guaranty benefit and other housing-related programs to help service members buy, build, repair, retain, or adapt a home for your own personal occupancy. These VA Home Loans are provided by private lenders, such as banks and mortgage companies, however, the VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms – interest rates will vary by lender. For more information about VA loan eligibility and rules, visit the Department of Veterans Affairs.

Should you take advantage of special mortgage options? Active-duty military personnel, as well as certain veterans, reservists and National Guard members, are eligible for Veterans Administration loans, which generally allows them to borrow up to $417,000 with no down payment or private mortgage insurance (the cap is higher in certain high-cost counties; go to www.homeloans.va.gov for a full list of the current limits). Deciding whether to take the VA loan or a standard loan also depends on your family’s circumstances and other potential uses for your cash.

If you have a good credit rating and enough money to make a down payment, however, you might get a better deal on a standard mortgage. To improve your chances of getting a good rate, check your credit report for errors. You can get one free copy of your credit report each year from each of the three credit bureaus – Experian, Equifax and TransUnion.

Guidance from a Professional Financial Advisor or Agent

A trusted financial advisor, who specializes in helping military families, can help you navigate the process of renting and buying homes through military benefit programs such as the BAH and VA Home Loans. Most advisors will recommend renting for at least a few months when you move to a new area, so you can learn about the neighborhoods and can pick the best place to live. If you plan to live in the area for at least three years, then you may be ready to purchase a home.

Most advisors and real estate agents recommend limiting housing costs to no more than 30% of your take-home pay, so you or your family will not have to struggle with monthly expenses. Don’t forget to include the cost of homeowners insurance, property taxes, utilities and regular maintenance when adding up the true cost of home buying.

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