Owning your own home is a dream for many, but when you’re in the military, it may not always be practical. Should you buy, knowing that you’ll probably need to move within the next few years? Should you rent, when that money could be used to build equity? The answer is different for every military family, based on your individual circumstances. Here are some tips to help make the right decision for your needs.
Basic Military Homebuying Considerations
As an active duty servicemember, you know that you’re likely to move within 2 to 4 years after your last Permanent Change of Station (PCS) move. If you buy a home while you’re still on active duty, unless you’re planning to retire or leave the military, you’ll probably need to sell or rent the home out. This is a good way to build equity and generate some passive income, but it can also affect your housing options and tax liability in new locations.
Moreover, managing a property from far away—even with the help of a civilian spouse—is more work for your family, even if you hire a property management company. You’ll need to carefully consider whether you’re up for the challenge of selling, or being a long-distance landlord after you move away.
In addition, consider whether you’re likely to re-tour the area during your career, and if you’d like to retire there. If you’ve found the perfect location to live out your golden years and want to rent the home out in the meantime, that can be a great way to secure your future.
Market Trends, Location and Other Factors
Your military career is just one factor to consider. It’s also important to consider how well the national and local economies are doing, the current interest rate trends, real estate prices, your total family income, whether you have saved cash for a down payment and your tax bracket.
When real estate prices go up, homebuyers are faced with a choice: get in before the prices increase even more or rent and wait for the market to decline again.
Generally, when interest rates rise, the cost of a home mortgage goes up. In turn, renting seems like a better deal than locking down a home. Rental inventory goes down, and prices go up, while the purchasing inventory goes up and home sale prices tend to go down. This results in lower mortgages, and lower monthly payments—even with a higher interest rate.
It’s impossible to predict market trends precisely. Real estate fluctuates over time. Based on past trends, the cost of real estate has increased throughout the years. It may be prudent to invest in your own home and rent it out until you return, leave the military or retire—especially if you’re living in a popular area.
When you’re deciding whether to rent or buy, it’s important to understand which benefits you may qualify for when the next PCS order comes in.
When you’re renting a home as a civilian, you’re usually asked to commit to a specific term (often a year). If you have to move away before the lease ends, you may incur hefty penalties. This can put an undue burden on servicemembers who receive PCS orders with little warning.
The SCRA protects servicemembers by granting them the right to terminate residential leases without penalty after they receive PCS or deployment orders with a military service duration of at least 90 days. All you have to do is submit a written notice of termination and a copy of your orders (or letter from your commanding officer) to the landlord. Of course, if you’re already on a month-to-month lease, these protections aren’t as crucial as servicemembers who were asked to sign long-term leases.
Technically, SCRA’s specific foreclosure protections apply to mortgages taken out before active duty service. However, the SCRA also provides protection against default judgments in civil cases, which includes foreclosures. Courts cannot enter a default judgement until after an attorney is appointed to represent you and must permit proceedings to be delayed for at least 90 days if you meet certain qualifications.
Renters are more likely to need SCRA protections—but it’s always good to know which benefits are available so you can make an informed decision.
Save for a Home with Navy Federal Credit Union
When you decide to save for a home, Navy Federal Credit Union can help. Reach out today to find out how our savings and investment accounts can help you build a nest egg, save for retirement and build the future you want for yourself and your family.
- Create a budget and look at what you’re able to afford in terms of monthly housing expenses. Use that as a foundation for determining whether you can afford to buy vs. rent.
- Inventory your lifestyle and determine whether you have the time, energy and motivation to take care of a home. Likewise, consider if you’re comfortable having a landlord and working with them for basic living needs.
This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.