Buying a Home While on Active Duty
If you’ve considered buying a home while on active duty, you’ve probably had some conflicting advice. It’s not a question of whether you can buy: You certainly can. The question is: is it a good idea for you?
In reality, it will be a smart move for some. But not for others. So this article aims to help you make an informed decision.
Should you buy a home while on active duty?
Nearly all the pros and cons you need to consider are financial. But not quite all. Because some are more personal.
For example, do you have a spouse or family currently in on-base housing that’s substandard or even dangerous? That could easily spur you into action.
And what are your plans for retiring from service? If you’re going to be a civilian soon, that could make homeownership less complicated, provided you can afford it. Having said that, plenty in the military own their own homes for years or decades before they retire.
- Monthly costs. Affordability must be your prime consideration. And it’s essential that you recognize what you’re taking on. Besides monthly mortgage payments, you’ll have to find property taxes, homeowners insurance, and possibly homeowners association fees. And you need to budget for maintenance and repairs. Use an online mortgage calculator to figure out most of these expenses.
- Market. If you want to buy in a place with rapidly rising home prices, you may want to get a move on before you’re priced out. But if those prices are stagnant or dropping in your chosen location, there’s no rush. And you may choose not to buy at all.
- Tax benefits. The IRS says for 2020 (check for subsequent updates), “You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness.” But that won’t apply if you take the standard deduction. So check with a professional what the current rules are and which will leave you better off.
- Ability to rent. For VA loans, the rule is that the applicant or spouse must “personally occupy the property as his or her home,” according to the VA’s website (PDF). With good reason, you can delay that but you’re normally expected to take up residence within 60 days. And the VA says, “Occupancy at a date beyond 12 months after loan closing generally cannot be considered reasonable by VA.” If you want an investment property that you can rent out, you’ll likely need a “conventional loan” from a private lender. More on this below.
- Ability to sell. There aren’t rules on selling unless you want someone with VA-loan eligibility to “assume” your loan.
- VA loan eligibility. VA loans are arguably the best possible type of mortgage. So are you eligible? The VA says you need 90 continuous days of active duty to qualify.
- Tour schedule. Chances are, the VA’s going to be fairly understanding if you can’t occupy your home due to service demands. But you’ll be assuming all the costs of homeownership from the day you close on the home. So you might want to take your tour’s likely schedule into account when timing your purchase.
It’s worth expanding on that second point: market conditions. Some (fairly few) cities and areas are in long-term economic decline and home prices might continue to fall in those. Research your local market online to see the direction of its home prices.
How to find a home while on active duty
The coronavirus pandemic has had very few upsides. But a tiny one for homebuyers on active duty is that it’s made real estate agents more helpful to potential purchasers who can’t view properties in person.
And that means that you, for the first time ever, might be on a level playing field with local buyers who are shielding or observing COVID-19 restrictions — even if you’re many thousands of miles away on a different continent.
And as long as you have internet access, you can always browse property websites and the Multiple Listings Service (MLS) for candidate homes.
These days, real estate agents are offering a whole host of ways to “view” a home, regardless of whether you’re two streets or two oceans away. Your long-distance viewing options include:
- Agent-hosted walkthroughs. For these, your real estate agent will walk through the home using Skype, WhatsApp, FaceTime, or some other video conferencing app. This allows you to ask questions or request closeups as you go.
- 3-D tours. You navigate your way around a home and can see a 360-degree view of each room, zooming in at will and with options to view the home as a “dollhouse” or in floor-plan mode.
- Virtual reality (VR) tour. Like a 3-D tour but often with an option to see measurements. Use a VR headset, if you have one.
- Pre-recorded video walkthroughs.
It’s probably a good idea to use all the pre-recorded stuff first (they’re on agents’ web listings) to eliminate no-hopes. Then schedule a live, agent-hosted walkthrough of those you like.
But be aware that photos and videos can make a home look better than it really is. So bear that in mind. And make sure you get a home inspection. We’ll explain more about those below.
It’s usually a good idea to use a buyer’s agent. This is a real estate agent who acts on your behalf: helping you find the right home, negotiating the deal, and generally helping you all the way through to closing — and sometimes beyond.
The good news is that a buyer’s agent typically shares the selling agent’s commission so you don’t have to pay him or her. But that’s not always the case. So make sure the arrangement is clear before you get in too deep.
Just find one who’s helpful, effective, and proactive. Check out candidates online. And, if you know people in the area, ask for recommendations.
Get a home inspection
Whether or not you choose a VA loan, your lender will require you to have an appraisal. But be aware of the limitations of a VA appraisal; its sole purpose is to tell the lender if the home you want to buy is worth the amount you’re paying.
An appraiser often has little knowledge of home construction and won’t check the property’s condition beyond what’s obvious. For that, you need a home inspector.
And you do need one of those. Especially because you haven’t inspected the home yourself. The protection provided is well worth the cost, which, according to HomeAdvisor, typically ranged from $279 to $399 in 2020 — more for big homes.
For more information, read this: VA Appraisal And Home Inspection Checklist | 2020.
How to get a mortgage while you’re deployed
This is the easy bit. More and more lenders (almost certainly, a large majority) allow you to apply online. And many are happy for you to have an end-to-end online experience all the way through to closing.
Nowadays, nobody raises an eyebrow if an applicant closes without ever speaking to a human being. So you may be able to ignore time-zone differences and telephony challenges. And have the same experience as someone who lives on the same block as the lender’s headquarters building.
Signing documents while you’re deployed
You have options for signing vital documents, including your closing documents.
To start with, you may have left a power of attorney with your spouse or perhaps another family member or close friend. If so, they’re legally empowered to sign the documents on your behalf.
And, if that’s not the case, electronic signatures are increasingly common. For example, Freddie Mac explains, “The validity of electronic signatures (in lieu of ink signatures) is based on the federal Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA), as enacted in the applicable state.”
And it goes on to say that it’s been supporting electronic loan documents and eMortgages since 2005. So this isn’t new.
But you may find some lenders are more amenable than others to various forms of e-signing. So make sure the one you choose can accommodate your needs before you commit.
Moving into your new home while on active duty
The ease with which you can move into your home after you’ve purchased it will depend on a number of factors. Those include whether:
- How much furniture and other belongings you own
- Your spouse or friends are good at project management and perhaps have some muscle power
- You can afford to pay professional movers
- The home needs repairs or improvements
The practicalities of moving aren’t too onerous. But what about those occupancy rules?
Occupancy rules & exceptions
Early on, you have to sign a declaration that you intend to personally occupy the home as your primary residence. And that must be your plan.
If you have a spouse, his or her occupation of the home counts as if you were living there. So you can stop worrying about occupancy rules as long as one of you is in residence. The same applies to a dependent child, though you’ll need an occupancy certificate from an attorney or legal guardian.
When duty calls
When you’re on deployment, you’ll have “temporary duty status.” And that counts as residency for the VA’s purposes. So you’re there, fulfilling your occupation requirements, even when you’re not.
And you’re likely to get the right to intermittent occupancy if your work means you’re away from home from time to time. But the VA may look for existing ties to (and residence in) the community. And you won’t be allowed to set up a different primary residence elsewhere.
Rules are also laxer for those approaching retirement. So if you’re buying a home that you’ll live in once you’ve left the military, you can purchase it up to a year before the date on which you take up residence.
However, you will be expected to provide a firm occupancy date before you close. And you should honor it.
Renting out your home
The VA can be fairly relaxed about its occupancy rules rule if you’ve shown you’ve acted in good faith. So, after a year or so in residence, you may be able to relocate and rent out your home.
But, if you want to buy somewhere else, you may have to refinance your existing home in parallel with buying the next.
However, that may not be the case if you have a Permanent Change of Station (PCS), in other words, you’re posted to a different base. Then you might be able to run two VA loans at the same time, renting out the first. But you’ll need enough “entitlement” left over to qualify for the second.
VA streamline refinance
If, later on, you require a VA streamline refinance (known as an Interest Rate Reduction Refinance Loan or IRRRL), you won’t face any ongoing occupancy rules. You merely have to declare that you have previously occupied the home.
The bottom line
So now you know the key things to explore before you start buying a home while on active duty. And it’s a lot. But many in the military are very happy that they’re homeowners. So it’s worth working out whether you could be one of them.