Buying and Selling a Home When in the Military

published 10 March 2017

Military families tend to move often, sometimes with little notice, which can make it tough to decide whether to buy a home or rent. But you also have access to some special perks that can help homebuyers.

It helps if you eventually plan to move back to the area, either before or after you leave the military, so you’d only need to rent out the house for a limited number of years.

Servicemembers can qualify for a VA loan, which lets you buy a home with zero money down and no private mortgage insurance (see benefits.va.gov/homeloans for details). Interest rates on VA loans tend to be comparable to other mortgages, but fees are sometimes higher. If you have a good credit score and can make a down payment, the VA loan may not be the best deal, says Andy May, chief operating officer for AAFMAA Mortgage Services, which specializes in helping military families with a variety of types of mortgages.

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“Only one in three people we work with select a VA loan when they’re presented with all of the options,” he says. Veterans with a disability rating, however, get a break on VA loan fees, usually making that their best deal. If you do get a VA loan with no down payment, recognize that if prices fall even modestly, you could wind up underwater, which means you’ll owe more than the house is worth.

Keep extra money in a safe and accessible account that you can use to cover your mortgage, utilities and other expenses for a few months if you can’t find a new renter right away. The Servicemembers Civil Relief Act makes it easy for members of the military to get out of leases when they’re deployed or receive orders to move—which can be great when you’re the renter, but tougher when you’re the landlord and lose your tenant with little notice.

If you eventually sell your home for a profit after renting it out, there are special tax rules that can minimize the bite. To claim tax-free profit (up to $250,000 for singles or $500,000 if you’re married filing a joint return), civilian homeowners must live in a house for two of the five years leading up to the sale. Military families, however, must live in the house for just two of the preceding 10 years to qualify for this tax break. See IRS Publication 3, Armed Forces Tax Guide for details.

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As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.