So my husband finally received orders to Oceanside, CA. Long story short, we will receive $3,800 in BAH.
- Is it smart to purchase a $500,000 property with 0% down with a VA loan?
- My husband’s logic is that the $3,800 is being put into something we own. So to him we will not lose any money theoretically.
My concern is if that is entirely true. I don’t want to come out of it in 3-4 years realizing that we not only earn nothing but lose money of our own.
- Would Geobaching work if I’m staying on Guam? He has been stationed here for 5 years and this is where we met. I was born and raised here as well. We get OHA + Utilities + COLA here… Would we be entitled to the same amount if I were to stay on Guam?
- Our son and I would move back in with my parents so would the money be pocketed? Or would I be required to rent (since you have to use the full OHA).
I would like to do whatever is financially best so we can save for a down payment for the next next duty station.
What would benefit us the most?
byu/Dontyellatme_2024 inMilitaryFinance
Posted by Dontyellatme_2024
7 Comments
There’s a lot to unpack here. Purchasing a home and assuming a 500,000 loan is a huge family financial decision.
As far as the financial aspect of it, you never know what the housing market is going to do, and if your plan is to sell the home after 4 years, you’ll have paid very little equity into the loan as the first 4 years of a 30 year mortgage is paid almost all into interest (roughly 80 percent paid to interest in that time), you’ll also have closing costs and realtor fees, etc that add up.
You would not be able to collect OHA and BAH at the same time if he opted to geobach.
You and your spouse should sit down with a financial manager or fiduciary and discuss the options, go over the average closing costs and realtor fees, look at the amortization schedule of a 500k home loan, and decide TOGETHER what the best option is.
There’s no guarantee what the market will be like in 3-4 years. It could make you a lot of money or a little money, or you could lose a lot of money or a little money.
To compare potential value, consider the cost of rent being the full $3800 (to keep it simple).
To compare that to renting you need to account for the costs to buy the home (closing costs, VA funding fee), the costs to sell the home (e.g. paying 6% to realtors), the costs to maintain/repair it, property taxes, and interest to be paid on the loan (which will be a lot).
The difference between renters insurance and homeowners insurance might also be something to consider.
Utility bills should be about equal if you’re renting a home vs owning it but could be another factor to look at.
I’m probably missing a few things that others can chime in on. But if all those projected costs are less than 3-4 years worth of rent, then it might be worth it to buy. I’ve bought and sold at 3 assignments and always came out ahead, but I also always improved the homes and did as much labor as I could myself. Owning can give you a lot more freedom and benefits, but also responsibilities and worries. Renting can be frustrating with landlords and you won’t make any extra money, but you have a lot less to take care of and worry about.
Have you looked at the SocCal housing market? 500k does not go very far.
Let’s run some numbers*
**Financing costs:** If you get a 7.53% 30 year fixed rate mortgage (pretty typical these days), you’ll be paying $3,506 per month or $42.072 per year in interest and principal. Most of that will go towards interest, and the tax deduction on that will help a little if you already itemize your deductions. This will eat up a little over 90% of your BAH. You will also have to pay the mortgage closing costs, which in California average 1% of the home purchase price. There are also home purchase closing costs that average $3,500 for a $500K house in California. This often gets added to the mortgage amount, so you might need to adjust these numbers up by 1.5% if you do that (or be ready to shell out an extra $8,500 when you close the loan).
Now consider **insurance and taxes.** These get rolled into your mortgage payment, but they’re in addition to the $3,506 that would go into that mortgage. Oceanside, CA has an average property tax rate of 1.22%, which comes out to $6,100 per year for a house worth $500K. Insurance average premiums are around $2,300K per year. Together, these will raise your housing costs by $8,400 per year to a total of $50,472 per year.
But wait, there’s more! You now need to consider the **cost of utilities** that your home will need: electicity, gas, water, garbage, and sewer bills you have to pay. In Oceanside, CA, this averages $190.64 for an apartment, but it will be higher for a single family home; the average power bill for single family homes in Oceanside is $254 per month. It’s hard to say how much your other utility bills will go up vs the average apartment cost, but a reasonable assumption is that a single family home’s utilities will cost 2-3x as much as a typical apartment. Let’s assume $500 per month, or $6,000 per year, raising your housing costs to $56,472 per year.
Your home will also need maintenance, repairs, and improvements if you’re taking care of this asset that will make up a significant chunk of your net worth like you should. A good rule of thumb is to set aside 1-4% of your home’s value for this. That’s $5K-$20K per year.
And with that, **you’ll need to budget for somewhere between $61K and $76K per year, or between $5,083 and $6,333 per month.**
With that out of the way, let’s talk about your husband’s view, that BAH is going to building up equity in your home.
Try using this amortization calculator: [https://www.calculator.net/amortization-calculator.html](https://www.calculator.net/amortization-calculator.html)
When I punch in a $500K mortgage over 30 years, I see that, over the course of the 3-4 years you’re assigned there, you’ll pay off about $21K in principal, which comes out to about 4.2% of the home’s value.
Let’s say that your house value stays steady and you decide to sell it in 4 years for the same amount you just bought it for. Real estate commissions are usually 6%, so all your equity would go into the pockets of the realtors, plus some extra.
Let’s say that something happens in the market or in your neighborhood or on your lot that decreases the market value of your house. This would put you underwater: you would owe more than your home would be worth.
In order to make money on your house in terms of equity, your home value would need to rise by more than 1.8% in four years, and the buyers would have to agree to pay all closing costs.
Out of those $3,800 per month you’ll be getting in BAH, buying your home this way means that a little under $500 per month is going into equity for the first few years, and a swing in the market could mean a big profit or a big loss for you both. And unlike a business loss, I don’t think there’s any tax deductions or credits for losing money on the house you live in.
You *could* rent the house after you move away from California. If you can get good tenants and cover your ownership expenses, this could allow you to keep building equity and make this a more reliable long-term asset. There are risks, costs, and benefits to being a landlord (and being a long-distance landlord carries some extra risk). It might be a good idea for you, and it might not.
If there’s government housing on base that you and your husband could live in at the next duty station, that might work well for you. There would be no BAH, but your housing costs would essentially drop to zero, and the cost of living on base tends to be a lot less, since everything you need is a lot closer and there are a lot of services and facilities that are free to DoD servicemembers and family.
**tl;dr: I don’t see a clear advantage to buying in your situation.**
When they give you bah money, your aren’t “required” to do anything. So if yall geo Bach and he lives with the fam for 3 years then yeah you can save all of it if you want
If you’re not against it, there is military leased housing that takes all your BAH, but you get a townhouse. I lived in them down in San Diego for several years and besides eating all your BAH, it was a pleasant experience.
Good luck finding a home for $500k. Best you can do is a very small condo for that amount in SoCal