Mortgage Options for Active Duty Military

For people serving in the military, buying a home can come with unique challenges, especially with frequent relocations and deployments. Fortunately, service members can take advantage of special mortgage programs that can make homeownership more affordable and accessible.

If you’re thinking about buying a home while on active duty, it’s important to understand your mortgage options. Whether you choose a VA loan, an FHA loan, or something else, every type of mortgage has pros and cons.

In this article, we’ll explain the different mortgage options for active duty military personnel, explore their benefits and requirements, and provide some tips for choosing the best mortgage for your situation.

See What You Qualify For With a VA Loan

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VA Purchase Loans

The VA home loan, which is backed by the U.S. Department of Veterans Affairs (VA), is the most popular type of loan for people in the military. Some of the key benefits of VA loans include:

No down payment required: Borrowers can purchase a home with no down payment, which can help save a significant amount of money.
No private mortgage insurance (PMI): VA loans never require PMI, which reduces your monthly payment. Conventional loans typically require PMI when the borrower puts less than 20% down.
Competitive interest rates: Because VA purchase loans are backed by the federal government, lenders can offer below-average interest rates.
Flexible credit requirements: Active duty military with low credit scores or limited credit histories may still qualify because VA lending guidelines are more forgiving.
Limited closing costs: The VA caps closing costs for military homebuyers to keep overall purchase expenses lower.

If you’re on active duty, you can typically qualify for a VA purchase loan after 90 consecutive days of service. National Guard, Reserve members, veterans, and surviving spouses can also qualify for VA loans, but with different requirements.

When you get a VA loan, you’ll pay a VA funding fee, which is a one-time fee that supports the VA home loan program. The funding fee is usually between 0.5% and 3.3% of the loan amount, depending on the type of loan, your entitlement, and the size of your down payment (if you’re making one).

VA Refinance Loans

If interest rates drop or your financial situation changes, it might make sense to refinance your existing mortgage. Refinancing often helps reduce your monthly payment. People serving in the military have two main options for refinancing a mortgage:

VA Interest Rate Reduction Refinance Loan (IRRRL): The IRRRL is ideal for service members who want to refinance their current VA loan as fast as possible. Usually, this loan doesn’t require additional income verification, credit checks, or documentation, which can speed up the process.
VA cash out refinance: A cash out refinance allows military homeowners to tap into their home equity. That money can be used for any purpose, but it’s often used to fund home renovations, cover emergency expenses, pay for education, or pay down high-interest debt.

Conventional Loans

While VA loans offer excellent benefits for people serving, there are situations where a conventional mortgage makes more sense. Conventional loans are private loans that aren’t backed by the government.

A conventional loan can be a good choice for people in the military if:

You want to buy a second home or rental property (which VA loans can’t be used for)
You’re prepared to make a down payment of 20% or more, which helps avoid PMI
You have an excellent credit score and stable income

Conventional mortgages can have many benefits for qualified borrowers, including:

Flexible terms (often ranging from 10 to 30 years)
No VA funding fee
Easier appraisal requirements

However, it’s important to know that credit requirements are typically stricter, and interest rates may be higher than VA loans, especially for borrowers putting little money down.

FHA Loans

The Federal Housing Administration (FHA) loan is another government-backed program, which is often used by borrowers who can’t qualify for a VA loan or conventional loan due to lower credit scores. FHA loans are a popular choice among first-time home buyers.

For active duty service members who don’t qualify for a VA loan, an FHA mortgage can be appealing. Some of the key benefits of this type of mortgage include:

Down payments as low as 3.5%
Lower minimum credit score requirements
Competitive interest rates

However, FHA loans also have drawbacks. The biggest disadvantage is that PMI is required, which can raise your monthly payment. FHA mortgages also limit the amount you can borrow based on your location, whereas VA loans don’t.

USDA Loans

If you’re stationed in or relocating to a rural area, you might qualify for a U.S. Department of Agriculture (USDA) home loan. For some service members, a USDA loan can be a good alternative to a VA loan, especially if your household falls under the income threshold and meets the property location requirements.

The main benefits of a USDA home loan include:

No down payment
Low interest rates
Lower fees and closing costs
Flexible credit requirements

Not everyone qualifies for a USDA loan. You must meet the following requirements to get this type of mortgage:

The home must be in an eligible rural or suburban location
Your household income must fall within specific limits
The property must be your primary residence

See What You Qualify For With a VA Loan

Check VA Eligibility

How to Choose the Right Mortgage in the Military

If you’re in the market for a home while on active duty, it’s important to pick the right mortgage for your current financial situation and future goals. Here are some things to consider as you research and compare mortgages.

Know Your Loan Options

Active duty service members have several options for mortgages, so it’s helpful to understand the differences between them, as well as the advantages of disadvantages. Think about your financial situation and what’s important to you.

For example, if you want to avoid making a big down payment, a VA loan is probably your best option. However, if you’re thinking about purchasing a second home that won’t be your primary residence, a conventional loan is a better pick.

Assess Your Financial Situation

When selecting a mortgage, it can be helpful to consider your deployment schedule, potential PCS moves, and long-term plans. Short-term assignments might make renting or buying a home that’s easy to sell or rent a better option. Also, factor in your Basic Allowance for Housing (BAH) when determining your budget.

Understand the Long-Term Loan Costs

Your monthly loan payment is just one element of your mortgage. You should also consider the interest rate, loan fees, VA funding fees, closing costs, and mortgage insurance cost, if required. Keep in mind that a lower interest rate doesn’t always mean lower overall mortgage costs.

Use Military Homebuyer Resources

People in the military can take advantage of several beneficial home-buying resources. Some ones to check out are:

VA-friendly lenders: Certain lenders, like USAA and Navy Federal Credit Union (NFCU), are more familiar with VA loans and military benefits than others. Working with a VA-friendly lender can streamline the loan process and potentially make it easier to get approved.
Military Relocation Professionals (MRPs): MPRs are special real estate agents who understand military life, including PCS moves. It can be helpful to work with an MPR when searching for a home, understanding your benefits, and managing the logistics of military transfers.
Homeowner Assistance Program (HAP): People in the military have access to the Homeowner Assistance Program, or HAP, which is managed by the Department of Defense. If you have to sell your house because of military relocation, this program can protect you from financial loss.

Final Thoughts

Active duty military personnel can take advantage of some of the most favorable mortgage benefits. From VA purchase home loans to flexible alternatives like FHA loans, service members have a variety of choices that can meet a wide range of needs.

Ultimately, the best mortgage for someone on active duty depends on their individual circumstances. Your duty station timeline, financial goals, credit history, and long-term plans can impact which mortgage is right for you and your family.

Frequently asked questions

What is the best mortgage for active duty service members?

For most active duty service members, a VA loan is usually the best mortgage option. VA loans offer benefits that are difficult to match, including no down payment, no private mortgage insurance, competitive interest rates, and more flexible credit requirements. These features can significantly reduce both upfront costs and monthly payments.

That said, the best mortgage depends on your specific situation. Factors such as your duty station timeline, credit profile, long-term plans, and whether the home will be your primary residence all play a role in determining the right loan.

Should active duty military always use a VA loan?

No, active duty military should not always use a VA loan, even if they are eligible. While VA loans are often the most affordable option, there are situations where another mortgage type may make more sense.

For example, a VA loan cannot be used to purchase a second home or investment property. In addition, buyers with excellent credit and the ability to put 20 percent or more down may find that a conventional loan offers competitive terms without a VA funding fee. Comparing loan options is the best way to determine what works for your goals.

Can active duty military get a conventional loan?

Yes, active duty service members can qualify for conventional loans just like civilian borrowers. Conventional mortgages are private loans that are not backed by the government and are widely available from most lenders.

A conventional loan may be a good option if you want to buy a second home or rental property, have strong credit, or plan to make a larger down payment. However, conventional loans usually have stricter credit requirements and may require private mortgage insurance if you put less than 20 percent down.

Are FHA loans a good option for active duty service members?

FHA loans can be a good option for active duty service members who do not qualify for a VA loan or who need more flexible credit requirements. FHA loans allow lower credit scores and smaller down payments than many conventional loans, which can make them appealing to first-time buyers.

However, FHA loans require mortgage insurance, which increases monthly costs and often lasts for the life of the loan. For eligible service members, a VA loan is usually more cost-effective than an FHA loan, but FHA financing can still be a useful alternative in certain situations.

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Written by Elizabeth Rivelli

Elizabeth Rivelli is a contributor with more than three years of experience covering insurance and personal finance. Her expertise spans a wide range of insurance lines, including auto, home, renters and life insurance. She has also published content for several insurance providers, including Ethos Life.