The new year often inspires fresh starts, and for many military families, that might include purchasing a new home. With Permanent Change of Station (PCS) orders or simply the desire to settle down, buying a home is an exciting milestone. However, it requires careful financial planning, especially when juggling military life’s unique challenges and benefits. Here are some budgeting tips to help your family prepare for a successful home purchase.
1. Understand Your Basic Allowance for Housing (BAH)
Your Basic Allowance for Housing (BAH) plays a significant role in determining your housing budget. BAH rates vary by location, rank, and dependency status, so knowing your specific rate is crucial. Use this allowance to set your monthly housing budget, but avoid maxing out the full amount. Leaving room for unexpected expenses ensures financial flexibility.
2. Evaluate Your Credit Score
A strong credit score can save you thousands over the life of your mortgage. Request a free credit report and review it for errors or areas for improvement. Pay down existing debts, make payments on time, and avoid opening new lines of credit before applying for a mortgage. A credit score of 620 or higher is typically required for VA loans, but the higher your score, the better your terms may be.
3. Leverage Your VA Loan Benefits
Military families have access to one of the best home-buying tools: the VA loan. With no down payment requirement, competitive interest rates, and no private mortgage insurance (PMI), a VA loan can significantly reduce upfront and long-term costs. Be aware of the VA funding fee, which varies depending on your military status and whether it’s your first loan, and include it in your budgeting plan.
4. Establish a Savings Plan
Even with a VA loan, buying a home involves costs beyond the purchase price. Closing costs, inspections, moving expenses, and potential repairs can add up. Set aside a dedicated savings account for these expenses, and aim to save at least 3-5% of your home’s expected price. Automating contributions from each paycheck can help you reach your goal faster.
5. Create a PCS-Ready Emergency Fund
Military families often face unexpected expenses during PCS moves, from last-minute travel to temporary lodging. Having an emergency fund—ideally three to six months’ worth of expenses—can provide a financial cushion and prevent you from dipping into funds earmarked for your home purchase.
6. Research Local Markets
Home prices can vary drastically by location, so research the housing market in your new duty station area. Connect with a military-friendly real estate agent who understands your unique needs and can help you navigate the local market. Understanding average home prices, property taxes, and insurance rates will help you create a realistic budget.
7. Stick to Your Budget
Once you’ve determined how much house you can afford, resist the temptation to stretch your budget for a dream home. Factor in all monthly expenses, including utilities, maintenance, and HOA fees, and leave room for savings and discretionary spending. Staying disciplined with your budget ensures long-term financial stability.
8. Plan for Long-Term Resale Value
Military families often relocate every few years, so think ahead about your home’s resale potential. Look for properties in desirable neighborhoods, with good schools and easy access to amenities. A home that retains or value increases will make it easier to sell or rent out when it’s time for your next move.
