One of the most important considerations when leaving the military is where to live. Should we buy a house? Should we rent? When making a home purchase decision, you need to understand how complex your situation is.
For example, staying local during your transition might be much simpler than relocating. But relocation isn’t the only factor. You must understand all the moving pieces to make a truly informed decision. First, you should understand the basics of the home loan benefits your military service has awarded you.
The VA home loan is one of the best benefits eligible military members earn in exchange for their service. The government guarantees a portion of VA loans to lenders, which results in excellent benefits like less stringent financial requirements and a zero-dollar down payment requirement. This avoids an additional monthly expense that non-VA loans often have to pay called private mortgage insurance (PMI).
Key Takeaways
- Your VA loan benefit is for life. Once you’re eligible for the program, you can use it as many times as you can qualify for a loan.
- You can use your VA loan benefit after separation, but it may be hard to qualify for a VA loan during your transition from military to civilian life.
- To buy a house after military transition, you need to have a job lined up and may need to rely on your spouse’s income to qualify. VA lenders typically require stable employment and income for your loan application to count.
How long do you have to serve in the military to get a VA loan?
Your VA loan qualification is based on the branch of service you were in.
Generally, active duty service members are eligible after serving at least 90 consecutive days during wartime or 181 days during peacetime. For members of the National Guard and Reserves, eligibility is typically granted after 6 years of service or after 90 days of active federal service, with at least 30 consecutive days.
You also must have been discharged from service under conditions other than dishonorable.
See our VA loan eligibility guide here for detailed VA loan service requirements.
Can you use the VA loan after separation?
Yes, veterans who have met the service requirements are eligible for VA loan benefits even after they leave the military.
Once you’ve qualified for a VA loan, you can use your benefit as many times as you want. In some cases, you can even take out multiple VA loans at once. Typically, the only situation in which you would lose your VA loan eligibility is if your discharge status changed.
Now that we’ve covered your unique VA loan benefit option, let’s review some things you should consider when buying a home after military separation.
Should you Buy a Home While Transitioning from the Military?
A reader recently wrote in and asked about buying a home right after separating from the military.
Hi Ryan, I am planning on getting out of the Marine Corps in April, and I am looking at buying a home. Can you share with me the tools I need to obtain a home and utilize all of my military benefits? Thank you in advance.
Thanks for sending your message. This is a great question, and the answer is more involved than it first appears.
Transitioning from the military to the civilian world is a big deal – you are leaving your job and the way of life you have known for the last few years or even the previous few decades. You need to consider many things, including your next job, where you will live, and how to take care of your family while you transition.
Your focus will be on 100 things at once – out-processing, transitioning from the old way of life to a new way of life, finding a new career, potentially relocating to a new area, taking care of your family, and more. This is true for servicemembers who are PCS’ing or separating from the military. Because of all of these considerations, in many cases, it is better to rent first and then buy.
Homeownership can be more expensive than renting over a short period due to expenses such as buying a home, furnishing it, paying taxes, maintenance, homeowners insurance, and association dues. Sit down and look at your budget before deciding to buy a home. Sometimes, it’s better to wait until you have made the transition, be at your new job for a few months, and have a clearer picture of how the change affects your budget.
If everything is lined up and you decide to pursue homeownership, go for it! Here are some tips to get you started on the right path.
Tip #1: Make Sure You Can Qualify For a Home Loan
Just because you know what house you want to buy doesn’t make it a done deal. Unless you plan to pay in cash, lenders have a say. Not only do the lenders tell you what they’ll lend, but they’ll give you terms & conditions.
However, you might have difficulty qualifying for the mortgage you want. There are several reasons:
- Your income is likely changing. You’re used to budgeting your housing costs based on your active duty pay. Not only that, but you no longer have the cushion of a tax-free housing allowance, and unless you are retiring from the service, you won’t have free medical care for you and your family. Unless you have a large cash cushion set aside, things may get a bit tight during the transition.
- The lender can only consider consistent income. If you’re leaving the military and have not started your next job yet, the lender can’t consider your future income for your mortgage. However, they can count any pension or disability income you plan to receive and your spouse’s current income.
- You need to have stable employment. Lenders generally look for at least two years of consistent employment history. This demonstrates stability and reliability in income. Lenders cannot count temporary income sources, meaning if you’re planning on collecting unemployment after separation, you cannot use that for your VA loan application. Similarly, most lenders will not consider the housing allowance as income for those planning to use the GI Bill in these scenarios. Brief employment gaps can be acceptable if you provide a reasonable explanation; thankfully, a military transition is as good as any. However, if you’re trying to qualify for a home based on your own income, you’ll likely need a job lined up directly out of service as documentation of any separation benefits to demonstrate income stability.
Tip #2: Know What You Can Afford
It’s easy to get carried away with the excitement of buying a new home, but committing to a property beyond your means can lead to financial stress and potential foreclosure. Many people have stretched far beyond their financial ability because they “fell in love with the house.” Be mindful of this as you begin your search.
Knowing what you can afford can help you set realistic expectations and focus on homes within your budget. You can use our VA loan calculator to look at your estimated monthly loan payment and then compare it to your other current monthly expenses. This is another reason it can pay to wait to buy a home.
Say you can qualify for a home using your spouse’s income alone, but your spouse’s income doesn’t qualify for enough to live in the area you want to move to. Waiting to purchase until you’re established in your job long enough for a lender to count your income may be worth it to get your dream home.
Tip #3: Be Aware of Your Benefits
If you will buy after the transition, ensure you’re using all the benefits. Other than the VA loan, veterans have access to several unique homebuying benefits beyond the VA loan, designed to support them in achieving homeownership:
Zero Down Payment: Transitioning from military service can involve immediate financial needs such as moving costs, establishing a new household, or covering living expenses until a new job is secured. The VA loan allows veterans to preserve their savings for these expenses instead of tying up a large sum of money in a down payment.
VA Funding Fee Exemptions & Breakpoints
The VA funding fee is a one-time payment buyers must pay when obtaining a VA home loan, that helps fund the loan program. However, the VA offers fee exemptions for those receiving compensation for service-connected disabilities, certain veterans who would receive such compensation if not for retirement pay, and surviving spouses of veterans who died in service or from a service-connected disability.
The funding fee is also less for your first VA purchase vs. multiple-time users (2.15% vs. 3.3%), but it decreases for all buyers to 1.5% if you put a down payment of 5% or more and 1.25% if you put a down payment 10% down or more. For more details, check out our VA funding fee guide.
Homebuyer Assistance Programs: Many states offer financial assistance programs specifically for veterans, including down payment assistance, closing cost grants, and low-interest loans. These programs can significantly reduce the upfront costs of purchasing a home.
Property Tax Exemptions: Several states provide property tax exemptions or reductions for veterans with service-connected disabilities. These benefits can result in substantial annual savings.
Military-Friendly Real Estate Agents: If you’re planning on using your VA loan benefit, make sure to work with a real estate agent who has experience helping veterans and understands the unique aspects of using VA loans. VA loans have unique appraisal requirements and closing costs that differ from other mortgage types. This is especially prevalent for buyers who will be purchasing after August 2024 and beyond since they will be affected by the NAR settlement decision that says that VA buyers can pay buyer’s agent fees, which was previously not allowed.
Tip #3: Plan for the Long Term
Finally, we’ve all heard the argument against moving twice. If you buy a house, you don’t have to worry about moving out of the rental home.
We’ve all heard the argument against moving twice. If you buy a house, you don’t have to worry about moving out of a rental home. That’s true, but in many cases, the moving cost is either partially or entirely covered for retirees and involuntary separatees. Even then, moving costs shouldn’t deter you from considering renting a home before settling down.
In a lot of cases, it’s the emotional cost of moving that convinces people to buy a home without considering all the facts. We’ve all had to put up with moving…that’s what we do in the military. Now that we’re settling down, we’d like to think that we deserve not to move, right?
But, the emotional cost of that extra move pales in comparison to the gut-wrenching despair I’ve seen in clients when they’ve made a 5-figure or 6-figure mistake. The kind of mistake you can make when buying a house with the best intentions and things go sideways.
The only right answer is the one that’s right for your situation. The housing market, job market, local economy, family dynamics, and personal finances all play a huge role in your decision.
Realize that housing is only one of many things on your separation to-do list. But it can also be the biggest investment (or mistake) you make as you transition.
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