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:
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.
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.
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.