Making the transition from the military to civilian lifestyle is a huge life milestone - not just for service members but for their family members as well. A move from military to civilian life can impact how you go about making major decisions, including buying a home.
When you’re considering buying a house – and therefore applying for a mortgage – it’s a bit easier to prove your income stability when you’re active duty military. As a civilian, you have to show your consistent income for at least two years prior to the time you apply for a mortgage.
If you’ve switched jobs or plan to switch, it’s important to stay on the same career path. If you’re someone separating from the military, you could potentially be eligible for the VA loan, which is often the most ideal loan option for veterans, active duty service members, reservists, National Guard members, and surviving spouses.
What makes the VA loan a good option?
It’s a pretty hefty list!
It’s government insured.
There’s no down payment required.
There’s no private mortgage insurance (PMI).
The funding fee can be financed in addition to your loan amount.
It’s more forgiving with credit scores.
Closing costs could potentially be covered by the seller.
You can own two homes at once with a second VA loan.
There’s no prepayment penalty.
The VA loan is reusable.
The VA loan is assumable by qualified homebuyers.
Should I get a mortgage knowing I'll be transitioning in the near future?
This is going to vary by person. It ultimately comes down to how prepared you are to buy a home and what stage of life you’re in. Transitioning can be hectic because there’s so much to do at once.
If your family relies on you as the sole provider, then there may not be certainty in where you find your civilian job or where your potential reenlistment will take you. If there’s a chance you may be leaving the area, then renting for the time-being is a better option.
In that time, you can build your budget, take a look at your finances, get settled into your new job, and see how your new job might affect your finances. Remember, there’s nothing wrong with continuing to rent until you feel like you’ve fully settled into civilian life.
The process may be a bit simpler for others. For example, if you have a spouse with a stable source of income and you plan to stay in the area, getting a mortgage might make more sense. Especially if your spouse alone makes enough to afford your mortgage payment for a while.
Can I use military income if my separation date is in the near future?
If you or your spouse are preparing for a separation from the military or are planning to reenlist (which is not always guaranteed) and are also considering purchasing a home, it’s good to understand how income qualifications work.
If your separation date or reenlistment is a year or more after your closing date, then you can use that income to qualify for a loan.
If your separation or reenlistment is less than 12 months from your closing or before, you would need to have at least one of the following:
Proof you are planning to reenlist with a statement regarding your intent to reenlist
A letter from your commanding officer that there are no circ*mstances that would prohibit you from reenlisting
Have a valid offer of civilian employment if you are not reenlisting
Basically, if you’re staying in the military, you’re fine, you just need valid proof. But, if you’re transitioning into a civilian job, you must provide your offer letter of civilian employment when you apply for the home loan or be currently employed at a civilian job.
Also, if you have any big gaps in employment, your mortgage banker may need additional income verification to process you loan. Your mortgage banker will typically look at the length of your employment gap and how consistent you were with your previous employment history, military service, education, etc.
What if I'm making a career change after the military?
Generally, you’re required to show two consecutive years of steady income, and it’s typically suggested that the income stay within your career’s line of work.
But not everyone continues on with the same line of work after their separation from the military. So, it’s a good idea to plan ahead before your separation in regard to your career path and try to land a job immediately following your separation.
The sooner you secure a new job after your separation date, the better off you’ll be in terms of being able to income qualify for a mortgage.
Whether you’re military or not, it’s best to determine if you should buy a house based on your needs as well as what you can comfortably afford. Owning a home should be a positive experience, so it’s ideal to get started on your journey when you’re financially stable and ready to settle down.
