4 Ways Military Homebuyers Can Calculate a Budget for a House

Posted by Lauren Schneider on Thursday, July 15th, 2021 at 6:21am.

How Much House Can I Afford on My Military Compensation?Because houses are usually the largest assets in a portfolio, buying a new home requires great attention to detail. To get the most out of your investment, it's important to have a precise idea of what is affordable. Although determining a budget may seem overwhelming, a military homebuyer has several ways of assessing their housing budget. Why does budgeting matter? Properly budgeting basic allowance for housing can help military homebuyers build equity without taking on an abundance of debt. Below, we'll go through four ways military personnel can develop a budget to buy a new home.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

Finding an Affordable Home with Basic Allowance for Housing

The government provides military members with a basic allowance for housing (BAH). That allowance is based on pay grade, duty station, and dependency status. The total amount includes rent and utilities.

One way military homebuyers can determine what they can afford is to use a BAH calculator. For example, suppose you are an E6 with dependents serving in Norfolk, Virginia. Your BAH will be $1887. If utilities cost you $287, you'll be left to afford monthly payments of up to $1600 using just your BAH. Your mortgage payment will typically include principal, interest, prorated homeowner's insurance, and, sometimes, a homeowners' association payment.

Rent Your Property & Increase Affordability

As a military member, you may buy a home intending to manage it remotely as a rental after being reassigned. In that case, you are essentially buying the home as an investment opportunity. You'll want to do your research and buy a high-demand rental with a monthly payment that equals less than 36% of your income when combined with any other monthly debts.

If you cannot find a home that meets these criteria, you may instead decide to wait until you move to a different duty station to buy a home.

Pay Cash for a Debt-Free Purchase

You may have saved a considerable amount of cash. Some people believe that going into debt for anything, even a home, is a bad financial strategy. Offering to pay cash can make your offer stand out because the seller knows that the sale can close quickly without a need for an appraisal or waiting for loan underwriters to approve. If you plan to buy entirely with cash, then you can afford as much as you've saved, minus some minimal closing costs.

Ways to Stretch Your Budget

Suppose you do the calculations and realize that you're facing challenges finding a desirable home for the price you can afford. If you are a long way from affordability, you may want to wait until another duty station to buy a property. However, if your budget is close to the market value, you may still be able to buy. Here are some tips:

  • Shop around for a different loan: even a small difference in the interest rate can make a big difference in the monthly payment.
  • If you're handy, consider a fixer-upper: the price will be lower, and you'll have an opportunity to make the house your own. Be sure to conduct a professional inspection and check for dealbreakers before making an offer.
  • Negotiate: maybe the seller will be willing to pay some of your closing costs, which will allow you to make a higher down payment and have a lower monthly payment.
  • Compromise: if you can't have everything you want, consider what's most important.

When shopping for a home, knowing your budget and sticking to it is critical. Use one or a combination of these methods to determine what you can afford. Then, be willing to make compromises to stay within that budget.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

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