Should You Buy a Home?

Owning a home vs. renting one is a complex and intimidating decision to make, a choice that will impact your lifestyle both physically and financially. In some situations, the money spent on rent can be more than a monthly mortgage payment, and as a homeowner, you’d be investing in your own property rather than giving money to a landlord every month. Still, this can be a tough decision, especially when your career requires you to move frequently. Let’s discuss four financial opportunities and challenges that are unique to military families that can affect the decision of whether to buy or rent a home.

• Active-duty personnel can expect to PCS every 2-5 years. Buying a home should always be considered an investment with a long-term holding period of at least 10 years. The selling price of your home must appreciate enough in the time you live there to recoup agent’s commissions, home repairs, and closing costs by the time you receive PCS orders. There is no guarantee that the value of a home will increase at least that much. In fact, there is a chance that the value of your home could go down—this happened to thousands of military families between 2009-2015.

• Are you prepared to be a long-distance landlord? If you, as a homeowner, choose to keep your property as a an investment for the long-term and rent your home after you move, are you prepared to continue to pay property taxes, insurance, and upkeep of that home? Are you prepared for that nightmare tenant that destroys the house, and are you prepared to deal with the repercussions from natural disasters like hurricanes and tornadoes while deployed thousands of miles away? If you feel like you are, I strongly recommend having “Loss of Use” coverage on your homeowner’s policy (also known as Part D). If you are renting out a home, it would reimburse you for lost rent due to events like these, or if you are living in the home, the policy would reimburse you for temporary housing.

• The ability to buy in your mid 20’s. Military personnel have access to VA loans, which means they can get a loan with no down payment required and no PMI (Private Mortgage Insurance). Without a VA loan, most buyers need to put somewhere between 10-20% down on the purchase of a home, which requires substantial time to save. With access to a VA loan, though, a young, married E-5 could potentially have enough income and credit history to borrow $300,000 to buy a home. How awesome and scary that is at the same time? Catch: There is a VA funding fee required unless you have a VA disability rating of 10% or more.

• The tax advantage. When selling a home, there is usually a long -term capital gains tax of 15%. For example, if a home is purchased for $300,000 and sold for $400,000, there would be a 15% capital gains tax on the gain of $100,000. The tax would be $15,000. But long-term capital gains on the sale of a home have an exclusion of $250,000 for single filers and $500,000 for married filers. As long as you’ve occupied the home for two of the last five years, the exclusion above would apply, and you would owe $0 in capital gains. For military personnel who receive PCS orders, these five years are extended 10 years. This means you have 15 years from the date you last lived in the house to sell it and avoid capital gains tax.

In the end, of course, the decision whether to buy or rent is yours, but you should always consider both options carefully before making a decision.