by Julie Capouch, Guest Contributor
Homeownership: an essential part of the “American dream.” Thanks to the VA loan program, it’s within reach for a majority of military families.
It’s easy to see the appeal of owning your own home – no landlord to answer to, the ability to paint your walls any color of the rainbow and saying goodbye to the ugly linoleum that seems to be so prevalent in military housing.
I’ve been there.
When my husband and I were PCSing to our previous duty station, we decided to take the homeownership plunge (first time for me, second time for him). We prequalified for a VA loan, took a weekend trip up to look at houses and ended up buying the “perfect one.”
On move-in day, we were filled with excitement, but that excitement didn’t last.
We would end up referring to that house as “the bane of our existence.”
Homeownership became a suffocating experience for us because we weren’t prepared.
We learned that just because you can do something, that doesn’t always mean you should do it. Here are 5 reasons military families might want to think twice before taking the homeownership leap.
5 Reasons Not To Buy A House, Even If You Qualify For A VA Loan
You don’t have a down payment.
This one may come as a surprise. After all, isn’t the appeal of the VA loan that military families can purchase a home with no money down without having to pay private mortgage insurance (PMI)?
This is true – but you will have to pay a funding fee, currently 2.15% if it’s the first time you’ve ever used a VA loan and 3.3% for each subsequent use (regular military). However, if you have a down payment of at least 5%, that funding fee is reduced to 1.5% for first or subsequent uses. On a $200K house, that could reduce your funding fee from $4,300 (first use) or $6,600 (subsequent use) to only $3,000.
A down payment also ensures you have equity in the home the moment you move in, offering a bit of a cushion if and when you have to sell. We bought our home without a down payment and rolled the 3.3% funding fee into our loan (the realtor told us this was what everyone did). Looking back, I cringe when I think of how young/naive/stupid we were.
You don’t have a cash emergency fund.
Homeownership is not without risk.
We learned this the hard way when our heater died a month after moving in. While our toddler – bundled head to toe in winter gear – was running around inside with my then-pregnant self, my husband was outside in 11 degree temperatures with the HVAC tech being told we’d have to come up with thousands of dollars to replace the entire unit. There had been no red flags on the home inspection report. The unit had been running correctly on inspection day and the inspector simply noted that the unit was older. We were not expecting to drop upwards of $5K on a heater so soon after moving in.
That is why an emergency fund should be an essential part of any homeownership plan. If something breaks, there will be no landlord or housing maintenance tech there to save the day.
Dave Ramsey suggests saving enough to cover 3 to 6 months of expenses in a general catch-all emergency fund. Suze Orman suggests saving to cover 6 to 8 months. Others say to save 1 to 2% of a home’s value in a specific house emergency fund account.
At a minimum, it would be wise to have around $5,000 in cash on hand to cover the unexpected expenses that come with owning a home.
You haven’t researched the market and the area.
When we bought our home, we thought we had this one covered. My husband had been stationed there before, it was where I had graduated high school, and my family was still in the area. We knew of the one school zone to avoid and made sure we didn’t look in the “bad” part of town. My husband had even bought and sold a house for profit the last time he had lived there.
As it turned out, we didn’t know the area as well as we had thought.
Even in the span of 5 years, market trends and locations can change. When we bought our home, a number of new subdivisions were being built within a 1-mile radius of the house. That meant our house did not appreciate as quickly as houses in other parts of town. The market itself had slowed too, making for an overall bad scenario when it came time to sell the home. If we had done more research, we would have bought in a different area of town.
You will not be at this duty station for 3+ years.
Chances are, you’ll eventually have to sell the house you are buying now or keep it and rent it out. But selling a home requires more than finding someone to offer a price that’ll pay off your mortgage. The sell also needs to cover the cost of a realtor (usually 6%), and if your house is in a military-saturated market, it’s often expected for sellers to pay closing costs for the buyer (around 4%).
If you plan to rent the home out, you’ll need to charge a rent amount high enough to cover your mortgage and property management fees (if applicable), while having some money leftover to put aside to cover repairs that may be needed on the property. Even if you are using a property management company, you as the owner will be responsible for the cost of repairs. You may also need to pay the mortgage between tenants.
In both scenarios, your home’s value will need to appreciate enough (or your mortgage be paid down enough) to absorb these extra costs. This takes time, meaning if you don’t live in the house for at least 3 to 5 years, you might be upside down on your home whenever you do need to leave.
There’s still no guarantee you won’t have some bumps along the way. We ended up owning our house for almost 8 years and the home only appreciated roughly 1.5% each year. After closing was done and I deducted our expenses from our “profit” check, I found we had lost about $10,000 by owning that house.
You haven’t considered your stage in life and current goals.
There’s a proverb in most religions and cultures: “for everything there is a season.” This true for homeownership as well.
Purchasing a home is a big commitment and is not for everyone, every place or every time.
If I had taken this lesson to heart all those years ago, we never would have bought a house. We were a young couple with a toddler and a baby on the way, we had almost no savings, and I was still finishing school. In reality, we had no business buying a house when we did.
Perhaps you are in the process of paying off student loans or funding your/your spouse’s education. Maybe you have credit card debt and/or significant car payments. You might be at a duty station where living on post would ensure your children attend better schools than off post. In all these cases, it might be better to delay purchasing a home and choosing instead to rent an affordable home that will meet your needs or to live on post for the time being.
Our experience was a master class in all the things that can go wrong with homeownership, in part because we didn’t consider the reasons I listed above.
Will we ever buy again? Absolutely – but it will be at our last duty station (or after retirement), with a down payment, when we have a hefty emergency fund and have thoroughly researched all aspects of the area, neighborhood and house.
Until then, we are happy living in our smallish house on post, where I can call the maintenance office anytime something breaks and I know I’ll never have to pay to replace a heater, toilet or sink. And they even mow the lawn for me!
Still considering using a VA loan to buy a house at your next duty station? You’ll want to read Buying or Selling a Home? Real Estate Tips for Military Families.
Julie Capouch is a military spouse, mother of two, and English teacher living in the Southeast. She writes about parenting, education, and military life.