For service members, owning a piece of the American dream — a home — is complicated, because most military families move every few years.
Still, until the housing market tanked a few years ago, some military homeowners were able to buy a house, sell it easily two years later, and even make a profit. For now, those days are gone.
Yet it's tempting to buy now because prices and interest rates in many areas are far lower than they were a few years ago.
Before you buy, ask a few key questions. For starters: If you get orders to move in the next few years, what would happen if you couldn't sell the house?
"When in doubt, rent," said USAA financial planner J.J. Montanaro.
Military requirements and housing markets don't always work well together. Just ask Chief Engineman Mickey Jones, who bought a house in Kings Bay, Ga., in December 2005.
Then "the housing market started to drop," he said. "I thought we would be able to get orders in the States, but that took us for a twist and we ended up with orders to Sasebo, Japan."
They accepted an offer on the home a month before they moved, but had to take $23,000 to the closing table.
Jones is among the nearly 8,000 people who have applied for the expanded Homeowners Assistance Program, which helps certain military homeowners affected by the housing downturn:
• Military members who received permanent change-of-station orders and had to sell their homes.
• Military and civilian government workers affected by base realignment and closure.
• Wounded warriors relocating for medical treatment.
• Surviving spouses who sold their home after the service member's death.
This is a limited program; those affected by PCS moves must have bought their home before July 1, 2006. The program is set to run through 2012.
Before the expanded HAP was launched, some were faced with either renting their homes — probably for less than the monthly mortgage — or, like Jones, scraping together the money to pay the difference between the amount owed on the mortgage and the selling price.
An ounce of caution
A positive byproduct of the downturn in the housing market is that people are being much more careful.
A few years ago, the housing market was so hot in some areas that houses sold within days, and buyers were bidding up prices.
"The market is not as liquid" now, said John Gannon of the Financial Industry Regulatory Authority, or FINRA. "Your house could sit on the market for months, and you may not get the price you want if you do sell it."
But everyone's situation is different. You may be certain that you'll return to the area later, or you may plan to retire there. So it might make sense to buy.
Things to consider:
• As you're choosing the area where you want to live based on schools, proximity to work, etc., do research on rental prices, availability of housing on the local installation and the prices of homes in the area. One place to start is the Defense Department's http://www.ahrn.com/">Automated Housing Referral Network.
Doing a thorough evaluation of the rental market will help in two ways, Montanaro said: It will help you determine if it will cost less for you to rent than to buy, and give you an idea of the rental market you might face if you need to rent your home when you get reassignment orders.
• Shop around for the best mortgage. Gannon said a FINRA survey shows that too many people don't — and that can cost you thousands of dollars.
• Plug your numbers into online calculators. One "buying vs. renting" calculator is available at http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?Section=YPTH">Ginnie Mae.
• Consider the advantages of buying: Mortgage interest and certain other costs, such as real estate taxes, are tax deductible. Also, unless you have an adjustable-rate mortgage, your payments will stay relatively stable; landlords can always raise rent. And if you're paying rent, you're not building equity.
• Consider the stability of the local market and whether it's likely to grow in population or shrink.
• Consider the costs of buying. If you make a 10 percent down payment on a $100,000 home, that's $10,000. What would happen if you lost that money when the house loses value?
If you make a down payment of less than 20 percent, you'll have to pay private mortgage insurance, which varies according to the amount of the loan and the down payment. You'll have to pay for homeowners insurance, property taxes and upkeep on the home.
• Consider the costs of selling — 6 percent of the sale price or more, when adding real estate agent fees and other costs.
• Consider other costs, such as utilities. Ask for bills to show the costs for the past year. If it's a rental, find out whether the rent covers any utilities.
• Keep the housing allowance in that area in mind — not just for your needs in renting or buying, but for those who might rent your house in the future. If you buy, would the cost of your mortgage be a reasonable amount of rent to pay for a broad range of people receiving that allowance?
• Whether renting or buying, keep your housing costs to no more than 30 percent of your take-home pay. Even lower is better, Montanaro said, especially if you have more expenses.
• If you're buying a house based on two incomes, what will happen if you can't sell the house when you move and your spouse can't find a job?
While banks generally have tightened up on their credit requirements and may be issuing fewer mortgages, some military-related financial institutions are making more loans.
But to get them, you still have to have an adequate credit score and be able to make the payments. That's nothing new for most military banks and credit unions, because they didn't engage in the subprime lending practices that got other financial institutions and their borrowers into trouble over the past few years.
"We were always conservative," said Bob Dixon, senior vice president of lending for Armed Forces Bank.
"We're still making lots of VA loans," Dixon said. "We're not seeing that it's harder for [customers] to borrow money."
In fact, Veterans Affairs Department home loans are a bigger part of Armed Forces Bank's business now, he said. Five years ago, about half of the bank's loans were VA loans; now, those loans make up about 80 percent.
Money also is not tight for Pentagon Federal Credit Union, said Shashi Vohra, vice president of business development.
But PFCU has tightened its standards, Vohra said. It now requires slightly higher down payments on mortgages. Four or five years ago, PFCU offered up to 100 percent financing on conventional loans, but it now requires at least a 10 percent down payment.
Credit history is a big hurdle for some borrowers, Dixon said. Credit scores range from 300 to 850. Generally, if you're below the 630-to-650 range, you'll have problems.
Check your credit score before you start shopping for mortgages, said John Gannon, senior vice president of investor education for the Financial Industry Regulatory Authority.
Gannon also suggests locking in a fixed rate. He said interest rates are headed "only one way … up. If you get a variable rate mortgage, it's unlikely you will maintain that rate."