Part of military life is the high percentage of receiving your permanent change of station orders. This is also called PCS orders for short. PCS is the military version of a job relocation over 50 miles away. At least a benefit is that the military will pay for the move in these cases. Typically, military families are given 2 – 3 months notice of the duty station change. In order to have a smooth PCS transition, start planning and acting immediately.
After PCS Orders, 3 Decisions to Buy a New Home
For the end result of buying a new home, there are important decisions to make. First of all, what should you do with the current home? Renting or selling the home will affect the new home purchase in several ways, but either could work. Next, is to choose an experienced Realtor local to the new duty station. It is very helpful to work with a real estate agent who is experienced in the military PCSing process. Finally and equally as important, is to choose a VA mortgage lender experienced in the PCS process and the VA loan options available for every scenario. So let us help in explaining the VA loan options for PCS’d service members, plus how these options work.
Should I Rent Out or Sell My Home After Receiving PCS Orders?
Service members need to make some key decisions within a short timeframe after receiving PCS orders. Often to purchase another property, buyers need to rent or sell the current home. In order to make this decision, there are several factors to consider.
- Is there equity in my home so I can sell it?
- How quickly can my home sell?
- If bringing money to the sale, can I do it?
- Do I want to be a landlord?
- How does renting or selling my home affect buying a new home?
While making the decision to sell, it is paramount to choose a listing agent that is familiar with this PCS process. Additionally, look for real numbers on your house. A reputable Realtor will show you documentation to back up a listing price, plus expected sales turnaround. Of course, not all markets support a fast closing. Plus, there may not be enough equity in the home to sell. One of the worst things would be to plan on selling at a certain figure to find out in a few weeks, there must be a drastic price reduction.
If selling is not an option because of a slow market or limited equity, renting could work. Maybe the rental market is strong for the area and becoming a landlord fits the military family’s goals. Check out a recent article “How to get into real estate investing and build wealth“. The article discusses potential for starting a real estate portfolio.
Conversation with your VA Loan Officer
Lastly, speak to your mortgage loan officer for the new purchase. Thoroughly discuss how renting or selling the current home affects the VA entitlement and VA loan qualification. VA will allow 100% of the new contract rent payment to offset the mortgage payment inclusive of principal, interest, taxes, and insurance. This could help a service member use VA again to buy a home, which we discuss in more detail below.
Choosing a Real Estate Agent at the New Duty Station
Beginning the home buying process from afar is tough. Plus it takes a lot of trust and nerves. Starting the process by looking at pictures online but not knowing anything about the area is difficult. So that is where a local, experienced real estate agent needs to be your eyes and your guide! Begin with creating a list of your wants, needs, and a budget. Next, interview agents in the new PCS’d area and see which one exceeds the others in your opinion. Relay your list to the agents and once the Realtor is chosen, the agent should start sending houses which meet your criteria. Because of the relocation situation, Realtors in these cases are depended on more than a traditional purchase. This is especially important on a fast moving market as the buyers may go under contract without even seeing the house in person. Talk about trust! That’s why choosing an agent that is experienced and fully understands your family’s needs is so important.
Keep in mind that a buyers agent will require a prequalification letter from a reputable lender. Plus it is very important for the buyers agent to have a detailed discussion with the loan officer. The agent, loan officer, and buyer will have thorough discussions to organize a plan. Part of this plan is deciding on VA loan options to meet the overall goals and path of the prior home. So let’s discuss those.
VA Home Loan Options After PCS Orders
Luckily military families have access to probably the best mortgage loan type available. Because of the no money down option and no monthly mortgage insurance, it is a very attractive option. But often it is not as easy as “Just give me the VA loan option”. Especially in the case of a PCS scenario as there is usually another property in the mix. How much the prior home rents or sells for plays a huge role in the new VA approval.
How to Use a VA Loan While Renting Out Prior Home
One of the first questions an experienced VA loan officer will ask would be the plan for the current home. In this case, if the home will be rented, VA treats this very favorably for the buyer. Let’s say the current home has no equity and the total mortgage payment is $1000 per month. Then if the PCS’d family rents out the current home for $1000, VA considers the payment covered. We would not have to count a payment in a VA buyer’s debt ratio or residual income. Therefore, it is much easier to qualify.
But if the current home has a VA loan on it, then a portion of the Veteran’s entitlement will be tied up. Don’t worry though, because many are still able to purchase with no money down up to a certain amount. The amount depends on the basis and bonus entitlement available. Learn more about how VA Entitlement works which is displayed on the Certificate of Eligibility. Plus we will request the COE for the buyer which is usually obtained online within a few minutes.
Renting Current Home and Using Another VA Loan
Many do not realize that it is very possible to have 2 VA loans at once. So renting out the current home and having two VA loans at once could be done. Having two VA loans at once requires accessing the buyer’s bonus entitlement or 2nd Tier entitlement. Basically if the prior VA loan will not be satisfied prior to the new closing, part of the Veteran’s entitlement is tied up. Therefore, a VA lender would use a calculation to determine the total entitlement available for the new purchase. The entitlement and the purchase price will determine the amount of down payment if any at all. Check out another article to learn more called, “Rent your current home and buy your dream home with no money down“. Keep in mind this is for the conversion of a primary to a rental. Once a home has already been a rental property for a bit, the tax return numbers must be used.
Selling Current Home and Using VA Loan on New Home
What if the current home is sold? This will at least free up the VA entitlement towards the new purchase. Keep in mind that both the sale and the purchase can happen on the same day. Our underwriters would verify the eligibility would be freed up by the simultaneous sale. But what if the PCS orders came not long after buying the prior home? The family may have to bring some money to closing or maybe breaks even. Again, at least VA offers a no money down option.
Using Seller Paid Costs and Sales Concessions After Receiving PCS Orders
Unlike other mortgage loans, VA allows the seller to pay all reasonable closing costs without setting a percentage limit. In addition, VA will allow for the seller to pay up to 4% of the sales price towards sales concessions. If buying after receiving PCS orders, there could be a creative strategy to help the closing happen. The buyer may lack funds for some painting that needs to be done. Maybe the buyer needs to pay off a debt in order to qualify or just feel comfortable enough to buy the new home. That is where a knowledgeable realtor and lender, plus a willing seller could help make a closing happen for everyone. Learn more about using sales concessions creatively here.
Additional Benefits of a VA Home Loan
- Loans up to $1,000,000
- Higher debt ratios allowed to 55%
- 600 minimum credit score
- Seller may pay all closing costs
- Flexible guidelines for recent short sales, foreclosures, bankruptcy
- Purchase VA approved condos
- Favorable guidelines for deferred student loans
If your PSC orders have you relocating to a Virginia, North Carolina, South Carolina, or Georgia base, contact our VA experts to discuss your PSC and mortgage strategy.
Author: Russell Smith
Team Move OVM Financial loan officer success is Russell’s primary focus. He provides the tools and techniques he used as a top producing loan officer. Additionally he offers the Team Move OVM Financial Agent Training Program. Sharing is so important to Russell so he works diligently to be a resource to loan originators and Realtors.