Military Life – PCS for Homeowners

By: FINRA Investor Education Foundation Staff

Although the housing markets have largely recovered from the real estate bust of nearly a decade ago, a Permanent Change of Station (PCS) can still create a hardship for military homeowners who may be underwater on their mortgages (i.e., owe more on their house than they can sell it for). Homeowners who receive PCS orders and believe they may be underwater on their home should ask themselves these questions before trying to sell their homes:  

  • Can I sell my current home at a price that will pay off my mortgage?
  • If not, can I rent my home at a price that will cover the monthly mortgage payments? (See Investing in Real Estate – The Inadvertent Landlord)
  • Will I receive a lower housing allowance at my new duty station?
  • Will my spouse be able to find a comparable job at our new location fairly soon?

If you answered “no” to any of the questions above, you may be at risk of falling behind when you suddenly face paying for housing costs in two locations. If this describes your situation, you should consider talking to:

  • Your lender to see if you can negotiate a loan modification that lowers your monthly payments and makes the mortgage more affordable;

  • Your installation’s Personal Financial Managers, as they may be aware of resources and special programs that can help members of the military who have trouble selling their homes; and  

  • The U.S. Department of Housing and Urban Development (HUD), which has Foreclosure Avoidance Counselors who may also be able to assist you.

While researching housing options at your new location, be sure to do your homework:

  • Know your new cost of living. A new location may translate into a higher, or lower, cost of living. Check out the areas you're considering at CityRating.com. Know the Basic Allowance for Housing rates for your new location. Be sure to choose the appropriate “with or without dependents” rate for your situation.

  • Determine your housing budget. Calculate how much you can afford to spend on housing. Keep in mind that your housing allowance is tax exempt, a significant advantage over civilian home shoppers—but be careful not to overextend yourself.

  • Decide whether to rent or buy. If you plan to stay in your new home for less than three years, it's usually a good idea to rent. If you decide to buy, consider how likely you’d be able to rent the house for enough money to cover your mortgage in a new location if you have to move again, but cannot sell the house. This buy vs. rent calculator may help.
  • Check and improve your credit score. Whether you’re planning to buy or rent, your credit score matters. More and more frequently, property managers check the credit of potential renters before offering a rental agreement. And for homeowners, a good credit score can translate into savings in terms of lower interest rates.

A few months before you plan to apply for a mortgage or rental, check your credit report at http://www.annualcreditreport.com/ for any errors. Don't open or close any credit cards right before you apply for a mortgage, and keep your card balances low during that time to help improve your credit score and qualify you for a lower rate. If you're still serving in the military, you may also check with your PFM to access the SaveAndInvest.org myFICO® tool for your free credit score. 

  • Compare options when buying a home. If you decide to buy, compare any VA loan options you have with other mortgages. The VA loan is one of the few loans with a 0 percent down payment, but you need to be careful that you don't end up underwater if you do end up having to sell your house in the next few years before you’ve had a chance to build equity.

Also compare rates and limits between a VA loan and other loans. Keep in mind that we’re living in a slowly rising interest rate environment, so be sure you appreciate how rising mortgage rates will affect your monthly payment and mortgage products in general.

Don’t let housing become a PCS hardship. Some research and preparation can help reduce the stress of your next move.

For more information about managing everyday finances, visit SaveAndInvest.org.

 

Tip of the Day

  • Written by Guest Blogger | September 30, 2014

    The Thrift Savings Plan (TSP) offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans. Sign up or get more info at tsp.gov

Saver Stories View all »

Making Saving Automatic Leads to Personal Success

Written by Lila Quintiliani | May 27, 2020

Ryan’s savings journey started when he was an active duty airman. Frequent deployments and temporary duty assignments gave him the opportunity to save. By the time he transitioned out of active duty, he had built up a healthy rainy-day fund and had started to aggressively save for retirement.

Read more...

From Shopaholic to Saver

Written by Jackie Toops | January 13, 2021

Many of us spend too much money on things we don’t need, but we don’t always know why. It’s easy to get a quick fix from retail therapy, but before we know it, our hard-earned money is gone. Oftentimes, when we engage in a “shopaholic” lifestyle or sporadic shopping sprees, we still experience feelings of emptiness, but to make it worse, we now have debt, too.

Khanmany was a shopaholic who turned everything around. She is active duty Navy and shares, “I was spending too much on things I didn't need. I was going shopping for no reason and was trying to fill a void. I was running up every credit card I owned to include Victoria's Secret, Military Star, Navy Federal, TJ Maxx, JCPenney, Macy's, USAA, and was only paying the minimum payments.”

Read more...

Building a Six-Figure Savings While Enjoying Life

Written by Jackie Toops | November 13, 2020

Does the idea of saving up hundreds of thousands of dollars seem impossible? How about doing it while still living an enjoyable lifestyle?

For military spouse Martina and her husband, an E-5 in the Navy, accumulating a six-figure savings has become a reality. One might think that in order to save this much, it would take a great deal of sacrificing and forgoing a certain quality of life, but Martina and her husband would disagree. “Over the past few years (about five), we've managed to save almost $120,000 while mostly living on one income. We've learned so much about easy ways to save money and live a good life,” shares Martina.

Read more...