A quick peek around the internet will show all sorts of guidelines and formulas for how much house a family should be able to afford. Pinyo at Moolanomy recently wrote How Much House Can I Afford? and there are tons of similar articles available. They are useful tools, and a good place to start your calculations. However, if you’re military and not within 2-3 years of retirement, there is really only one reasonable rule to follow.
Don’t buy a house unless you can afford the entire cost on top of all your other living expenses. In other words, if you get PCS orders and need to leave the house, and you can’t sell it or get a renter, can you pay for all the house and all the associated expenses in addition to your living expenses at your new home?
I understand that this is a harsh rule, but I’m throwing this out there for your own protection. We own two homes, and there have been times when a tenant wasn’t paying the rent, or we had to rent for less than our expenses. It is painful, but we managed. And we managed specifically because we didn’t take on huge mortgages.
Rent or Buy?
Even when you have the urge to buy, be sure to do careful math. Renting is often more economical and it is definitely less risky. Plus, you get to call someone else when the house needs repairs.
If you do decide to buy, you need to think carefully about how much you can actually afford, including the mortgage and all the other costs of homeownership. Do not trust the calculations of your mortgage broker or real estate agent. Only you know the truth about your situation. Be sure to include all the costs, including repairs (always more than you budget) and things like window coverings and other household items. Also, consider whether your taxes or insurance are likely to jump in the future.
The Leeway In Your Finances
There are two ways that you can ensure you are prepared for such expenses: either have sufficient income to swallow the extra housing costs within your spending budget, or having enough savings to pay for at least 1-2 years of housing expenses. You can also have a combination of the two. Please don’t count on TSP or other retirement funds to cover these costs – that would be a double loss.
Why do I feel so strongly about this? Because I’ve had far too many friends and clients who have found themselves in awful financial situations because of a house that they can’t sell or rent. Some families choose to be apart, with the servicemember living in the cheapest possible place, so that they can still pay the mortgage on the house they bought at the servicemember’s last duty station. Some families face short-sales or foreclosures, which are just bad news all around.
I still hear stories of older military families who made fortunes buying a home at each duty station. The world of real estate has changed a lot since then. The chances of losing money are higher than ever. You don’t need that kind of stress in your life!