Since home values recovered substantially from their post-recession crash prices, the housing market is unaffordable for many home shoppers ‚Äì especially for military service members. Not all military members are provided on-base housing, forcing them to find reasonable housing nearby. Research shows that housing near military bases is some of the most expensive housing in the nation, especially near Marine and Navy bases located on the water.
Although military members generally move more frequently and with little notice compared to civilians, it‚Äôs still more cost effective for them to buy homes than rent in today‚Äôs market. In fact, U.S. military members can expect to pay 41.6 percent of their monthly income on rent while a mortgage should cost 31.5 percent. Again, Navy and Marine members pay a bit more; sailors pay 34.6 percent of their monthly income on their mortgages while Marines pay 36 percent, and both pay 43.2 percent on rent. In any case, buying is the better alternative.
Military members living off base are provided a basic allowance for housing which helps but doesn‚Äôt cover enough to meet the goal of providing equal standards of living both on and off base. Another benefit available to active service members, qualified veterans and surviving spouses is the Veterans Administration (VA) home loan. These loans are backed by the Department of Veterans Affairs but are provided by private lenders. The major benefit of VA home loans is the reduction of upfront costs for the buyer.
VA home loans benefit the buyer with the following features:
- One hundred percent financing is available for loans up to $417,000. That means no down payment. Regional loan size limitations may apply and lenders can make further restrictions.
- The majority of closing costs are rolled into the overall loan, rather than paid up front. VA loans finance fees relating to the appraisal, credit report, title insurance, lender origination and land survey ‚Äì the majority of closing costs. Sellers can also cover VA loan closing costs.
- Mortgage insurance is not applicable to VA loans. Government-backed loans such as FHA loans come with mortgage insurance premiums (MIP) that can sometimes add up to hundreds of dollars each month, but VA loan holders are exempt. MIP protects the lender‚Äôs investment since they covered 100 percent of the property.
- Prepayment penalties are not allowed on VA loans. Loan holders can pay off their mortgages ahead of schedule without any fees, if desired.
Military members require a Certificate of Eligibility (COE) from the Department of Veterans Affairs which verifies eligibility to lenders. Find a lender familiar with VA loans and communicate your interest in that option right away. Lenders can assist in acquiring the proper COE. Lenders review borrowers‚Äô finances for monthly debt-to-income ratios below 44 percent and credit scores no lower than 620. Homes purchased with a VA home loan must remain the borrower‚Äôs primary residence. If the homeowner must move, the VA home loan option is a reusable benefit for a future purchase.
Despite the costly housing market, the Department of Veterans Affairs offers benefits that greatly reduce the burden of housing costs on military service members. If you‚Äôre struggling to find affordable housing near your base, consider contacting a lender to learn more about your buying options.