Active duty families often ask me about buying a house. This is a highly controversial subject, and there are no right answers. There are a lot of factors to consider. Here are the top questions to ask yourself if you are wondering, "should you buy a house?":
Do You Have A Down Payment?
First, do you have 10-20% to put down on your home purchase? This is one of the keys to preventing financial trouble in the future. Many programs allow active duty military families to purchase homes with no down payment. These include loans guaranteed by the Department of Veterans Affairs (VA) and special programs such as Navy Federal Credit Union's Military Choice loan program. However, it is rarely a good idea to purchase a home with no down payment. If you finance 100% of the cost of your new home, you increase the chances that you'll owe more than you receive if you sell the house within the first few years. This is especially true if you roll a VA funding fee or other closing costs into the loan.
Are You Prepared To Become A Landlord?
Second, do you want to be a landlord? Military members should always anticipate that they could be transferred at any time. I know that some fields often homestead in a single location, or that certain service members have extenuating circumstances that make it seem like they'll never experience a Permanent Change of Station (PCS) move. Even those "we'll never move" families often discover that, in fact, they do end up moving.
Depending on the market, or your personal financial situation (see above), you may not want to or be able to sell a house, and you'll have to consider renting it. Renting can be a great situation, or a nightmare. The difference between a good landlording experience and a bad landlording experience is based on many factors. Two key factors are the house that you buy and the way that you finance that house. Be sure that you're buying a house that will make a good rental.
Do You Have Enough Savings or Disposable Income?
Third, do you have enough money in accessible savings, or does your budget have enough extra money in it? If you can't sell, and your house is sitting on the market, or you can't find renters, you will need to be able to cover the house's expenses. This includes the mortgage, utilities, extra insurance costs because it is vacant, having the property winterized if it is in a colder climate, etc. Do you have savings to cover these expenses for 4 to 6 months, or do you have enough money in your family's monthly budget to cover these expenses with your regular income?
Even you don't end up with a vacant house due to a PCS move, there are a shocking number of things that can go wrong with a house. Many of them should be expected, like roof replacements and air conditioning repairs. Other needed maintenance can be a true surprise, such as a cracked foundation or an exploded sewer line. While the amount is different for every situation, homeowners need to have significant savings. Without savings, maintenance needs quickly t become emergencies. Your budget should include 20-40% of the monthly mortgage amount to be put aside for home repair expenses.
If you have a small down payment, you should also have enough money in savings to cover the shortfall if you do end up having to sell quickly. You'll have to do the math to see how much is enough for your situation. I know one person who had to come to closing with $40,000 just to sell her house. I can't even imagine.
There's No Right Answer
Buying a house is a highly personal decision. You can make a better choice by answering these questions and thinking about the answers. I regularly talk to families who are in bad financial shape because of home purchases that were a bad idea to begin with, or where there has been a significant, unforseeable situation that has made the previously good plan go wrong. If you're not sure if home ownership is right for you right now, I suggest you wait. The consequences of buying wrong are too large.
