5 Home Purchase Considerations For Your Military Transition

When leaving the military, one of the most important considerations is where to live.  Should we buy a house?  Should we rent?  When making a home purchase decision, you need to understand how complex your situation is.

For example, staying local during your transition might be a lot simpler than relocating.  But relocation isn’t the only factor.  You need to truly understand all of the moving pieces so that you can make a truly informed decision.

Let’s look at five considerations when trying to decide whether a home purchase is right for you.

Home Purchase Consideration 1:  Buying a house might not be the most important thing on your ‘to-do’ list.

Your transition is going to be a very busy time.  How busy depends on the complexity of your transition.  Not only do you have to worry about the military’s process, but you have to figure out what life is going to look like after you transition.

If you’ve been stationed in the same area for a while, you might have less complexity.  Let’s compare two Sailors:

  • Sailor stationed in Norfolk & planning to stay in Norfolk
  • Sailor retiring to Norfolk from Yokosuka, Japan

You can probably guess that the overseas move adds more difficulty.  Not only that, but the Norfolk-stationed Sailor probably has a better understanding of the local market conditions.  Also, they probably know which neighborhoods are up & coming, and which ones are falling out of favor.  Finally, they have more time to get the information they need.  They simply have less on their to-do list.  People with fewer competing priorities are more likely to make an informed decision.  An informed home purchase might be a good one.

Home Purchase Consideration 2: You might not qualify for a mortgage. Or you might only qualify for a bad one.

Just because you know what house you want to buy doesn’t make it a done deal.  Unless you plan to pay in cash, banks have a say.  Not only do the banks tell you what they’ll lend, but they’ll give you terms & conditions.

Most people will agree that a fixed rate mortgage is preferable to an adjustable rate one.  However, you might have a more difficult time qualifying for the mortgage you want.  There are several reasons:

  1. You’re used to budgeting your housing costs based upon your active duty pay. Having a separate housing allowance gives people a number (more or less) to plan by.
  2. The bank doesn’t see your mortgage the way you do. They just see what you have, and what you’re going to be earning.  However, if you’re leaving the military and have not started your next job yet, the bank can’t consider your future income for your mortgage.  They can count any pension or disability you plan to receive, as well as your spouse’s current income.
  3. The bank’s terms will be based on how they see your situation. OK, the bank doesn’t see your situation the way you do.  That doesn’t mean that they won’t offer you a mortgage.  It might be a mortgage that isn’t as good as one you might have gotten.  You might qualify for a lower amount, or higher APR, or an adjustable-rate mortgage.

All of these might have an unintended result.  Let’s look at each one:

Lower mortgage amount:  A hard-pressed family might have their hearts set on the house of their dreams.  The bank comes back with an approval that’s lower than expected.  However, the family has already emotionally committed to this house and decides to come up with the money to make up the difference.  This could involve raiding their emergency funds or liquidating assets intended for long-term growth.

Higher APR:  If you commit to buying a house before you’re ready, you might not be able to clean up your credit.  For example, you might have credit cards to pay down, or you haven’t looked at your credit reports to ensure they’re accurate.  If you force yourself to buy a house before your credit score qualifies you for the best rates, then you’re probably going to pay more than you have to.  And that’s just silly.

Adjustable-Rate Mortgages (ARM):  Did I just say the A-word?  Yep!  A bank might give you the actual 30 year mortgage you want.  At a much lower rate than you expected!  But it won’t be a fixed rate…you didn’t qualify for that.  You qualify for a 3-year ARM…your interest rate stays the same for up to 3 years.  Then it goes up.  And up.  And up.  There are legal limitations to how high an ARM can go.  But that final rate will likely be much higher than if you had waited a year to get a fixed-rate mortgage.

You might say, “Simple problem, simple solution.  I can just get a mortgage earlier, or I can get the ARM now & refinance later on.”  One catch, which leads us to the next point:  “What if you’re no better off a year from now than you are now?”

Home Purchase Consideration 3: You might not be able to afford the mortgage after you leave active duty.

Let’s imagine that you do qualify for a 30-year, fixed rate mortgage at a low rate.  Let’s also imagine that you’ve left active duty.  Those job opportunities you had planned on are falling through.  Or the employer can’t bring you on right away.  Perhaps you have to take a job that doesn’t pay as well.  Or, you can’t find a job in the local area at all.

The bank doesn’t care.  They want their mortgage payment every month.  Even if you have set aside a proper emergency fund, you’ll go through it pretty quickly with a mortgage.

On the flip side, you could say that renting is the same as buying a home.  Either way, you’re stuck paying for housing expenses.  That’s true.  But what if you do find a job…one that forces you to move elsewhere?

At least you might be able to get out of a lease if you’re moving for work.  But if not, the end of a lease comes a lot sooner than the end of a 30-year mortgage.

Home Purchase Consideration 4: You might relocate sooner than you think.

Great!  You secured a house, just so you don’t have to move again.  Except your local job market tanked, or your leads dried up, or whatever.  You can get a job, but it’s not anywhere close.  So you can either become a geo-bachelor & leave your family behind, or you can move your family.

Most likely, family separation is one of the reasons you left active duty in the first place.  So if you decide that’s a non-starter, then you might become an accidental landlord.  Probably another thing you swore off as well.

You might be able to sell your house at a profit…but the smart money wouldn’t bet on that.

Home Purchase Consideration 5: Buying a house just to avoid moving twice might short-change you in the long run.

Finally, we’ve all heard the argument against moving twice.  If you buy a house, you don’t have to worry about moving out of the rental home.

That’s true.  However, in most cases, the moving cost is either partially (or in the case of retirees & involuntary separatees) completely covered.  Even then, the cost of moving shouldn’t deter you from considering renting a home before settling down.

In a lot of cases, it’s the emotional cost of moving that convinces people to buy a home without considering all the facts.  We’ve all had to put up with moving…that’s what we do in the military.  Now that we’re settling down, we’d like to think that we deserve to not move, right?

I’ll tell you…the emotional cost of that extra move pales in comparison to the gut-wrenching despair that I’ve seen in clients when they’ve made a 5-figure or 6-figure mistake.  The kind of mistake that you can make when you buy a house with the best intentions and things go sideways.

Conclusion

So what’s the verdict?  Should we buy a house?  Should we rent?  As I said, the only right answer is the one that’s right for your situation.  The housing market, job market, local economy, family dynamics, personal finances…all of those play a huge role in your decision.

Just realize that your housing is only one of many things on your separation to-do list.  But it can also be the biggest investment (or mistake) that you make as you transition.

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About Forrest Baumhover

I'm a career naval officer, and a fee-only financial planner. Half-way through my career, I discovered that I had a passion for financial planning, and have pursued this as my second career. My specialty is working with military professionals who are looking to separate or retire from the service, and who feel they need some professional guidance to make sure they're on track.
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