I Want to Buy a Home. What Should I Consider?

Homeownership is the American dream—and a big responsibility. Before taking on a mortgage, ask yourself the following questions:

• Can I afford to buy a home? If you have completed 181 days of service, you may qualify for a VA loan and possibly may not have to make a down payment. Still, you need to be prepared to pay other expenses such as property taxes, homeowners’ insurance, utilities, and routine maintenance. How much of your mortgage payment will the housing allowance cover? If not 100 percent, can you pay the difference? To learn more about VA loans, visit the Department of Veterans Affairs Web site.



• How easily could I sell a house in this area? The economy as well as housing trends change. A hot housing market can go cold—almost overnight. How long could you afford your mortgage if your home stays on the market after you are transferred?



• What tax issues would I face if I sold my home? If you must sell your home but have lived in it for fewer than two of the last five years, you may face capital gains tax if you sell the home for more than you paid for it. Even if you lived in your home for more than two years, you still might have to pay capital gains tax if you make a profit of more than $250,000 if you’re single or $500,000 if you’re married. However, the Military Family Tax Relief Act may enable you to avoid paying that tax. This is a complicated tax area and is affected by several factors such as the amount of the capital gain. For more information, talk to a tax adviser or read the Armed Forces’ Tax Guide.



• How easily could I rent my home? Instead of selling, you could rent your home when you are transferred. Consider who would provide the necessary maintenance. How would you deal with renters who damage your property or fail to pay rent? There are property management companies that will take on these jobs—for a fee. Would the amount that you can reasonably charge in rent be enough to cover your mortgage expenses and the cost of this service?

Before jumping into homeownership, consider talking with a housing counselor. The U.S. Department of Housing and Urban Development (HUD) can put you in touch with a free counseling service. Just call 1-800-569-4287 or visit their Web site.

Setting Aside Money for Off-Base Housing

The Department of Defense provides on-base housing only when the private sector cannot provide adequate housing. Today, about 65 percent of military personnel live off base in personally leased or purchased homes. As a result, most of the money you set aside for future moves should be for off-base housing. The following calculation can help you determine how much you should save. It will only be a rough estimate, but it can help you build a realistic moving fund. Find your basic allowance for housing (BAH) from your base finance office, housing office, or from the BAH Web site. Write down the amount generated by the rate query. $ ______________ Now add a “cushion” in case the BAH does not fully cover your housing cost. Choose a percentage of BAH, perhaps 15 percent. The cushion is the monthly amount you should try to set aside in your moving fund. Multiply it by the number of months you expect to be at one location—at least 18 months is a good start. $___________ x _______ months = $__________ This amount may not cover all your housing costs, such as utilities, but it will help defray some of the costs associated with living off-base.