Terry Gerton Important topic. This season of the year is when many military families find themselves in the middle of a permanent change of station. You and I have gotten those orders ourselves in the past, but in today’s times, what is the first issue that faces that family when they think, Oh, I have to move.

Mike Meese Well, there’s all kinds of things that affect the family, everything from the timing to the location, to what are you going to do during the interim time period? How else is everything else going to happen? And then once you get to that new duty station, everything that happens with a new location, am I going to rent, am i going to buy, are there going to be government quarters available, what schools are my kids going to go into, is my spouse going to able to take her job with her or him? And all of those kinds of factors all cavalcade all at once as soon as you find out about where you’re going.

Terry Gerton And in fact, the military really doesn’t have enough housing for all of the people it has. So a lot of people live off base. When they’re thinking about that, how do they decide whether to rent or to buy?

Mike Meese Well, you’ve got to make kind of a little bit of an educated guess of how long am I going to be in that particular area? If you’re only going to be there for one or two or even three years, it usually makes sense to either get government quarters or be able to rent. And again, you can do all kinds of calculations versus renting versus buying, but it’s difficult to see how it makes sense financially unless you’re going to be there for three years or more, or it’s in a location where you think that the housing is stable enough for you to be able, and you plan on renting that out so that other people can do it. For example, my son was at Joint Base Lewis-McChord. They lived in a house there. They knew that they were only going to to be here for about three years, but they very successfully rented that out for the ensuing six years because it’s right outside of Fort Lewis. Fort Lewis is going to be there for a very long time. And they’ve had reliable military renters in there ever since they left.

Terry Gerton Both buying and renting come with their own sets of expenses. Sometimes those costs are clear and sometimes those costs they’re kind of hidden. When you’re counseling a family on how to make that determination, what are some of the things you wanna make sure they look for?

Mike Meese Well, part of it is just the financial calculations, but really mentally you need to be prepared. If you’re gonna buy a home, that almost has to become your hobby. Many weekends you’re to be gardening and you’re going to be cleaning things up and you’re gonna be adding gutters or fixing this or fixing that. Is that what you want to spend your free time doing? And if you want do that, you can probably enjoy that house and have it make money for you in the long run. But you have to realize it’s somewhat of a lifestyle change if you decide to do that. And then once you decide if you’re going to buy a home, you obviously need to go through all those stages of getting a mortgage and figuring out how to most effectively do that.”

Terry Gerton What about on the renting side? What are some of the hidden costs there?

Mike Meese With renting, it’s important to recognize that you’ve got all of the moving-in expenses, the cost to establish utilities, usually it’s first and last month’s rent. And if you’re not prepared for that, that can be very expensive. For those people in the military, they can get an advance on their military pay for the dislocation allowance and other kinds of advances. It’s important if you get that to put that in kind of a separate savings account so that you don’t use that just for normal spending but you actually have it set aside so if you have to pay first and last month’s rent or deposit with the electric company or cable or internet, that you have those funds available for you.

Terry Gerton Mike Meese is president of Armed Forces Mutual. Mike, let’s say someone has decided that buying is the right option, then they have to get a mortgage. Sometimes the VA is a good option for them, but sometimes it’s not. How do people think through whether to get a VA loan or go on the commercial market?

Mike Meese Well, the first thing is the VA loan is available to anybody who is either in the military or a veteran. And the huge advantage of a VA loan is you can get that with zero money down. In other words, you can finance, if you’re buying a $250,000 house, the entire $250,000. You do have to pay a VA funding fee, which is between 1.5 and 3.3 percent, but that gets rolled into your mortgage so that you don’t have the money for a down payment, the VA works out effectively for you. The challenge, though, is the cost of that VA loan can be a little bit higher because of course you’re financing the entire amount. People can use your VA loan multiple times during your career. So in our case, we bought a house and sold it outside of Fort Hood, Texas, and then we were able to use that again. If you’re going to use a loan a second time, that funding fee goes up from 1.5 percent to 3.3 Percent. That’s where you would want to have the money to be able to bring down the VA funding fee, which you could do if you put 5 percent down.

Terry Gerton And how do those compare to commercial market closing costs, for example?

Mike Meese Well, the closing costs will be similar. Many of the VA closing costs, you actually are protected. So the closing cost will be slightly less. With a conventional loan, frequently you either need to put down 20% or pay for private mortgage insurance so that that will increase the overall cost of the loan. When we’re looking at the mortgage market now, we find that the interest rates are within about a quarter of a point between VA and conventional, Usually, VA is a little bit less, but again, it depends upon the area that you’re in and especially with interest rates fluctuating all the time, that can make a big difference.

Terry Gerton There’s sort of a conventional wisdom that it takes you three to five years of residency to actually recover those closing costs. Is that rule still in effect today? Does it still apply?

Mike Meese It is because the cost of that, of those closing costs is usually at least 6 or 7 percent of the cost of your home by the time you pay all of the fees that are involved. And so it takes at least three to five years to be able to recover those. Now the important thing also for people today who, for example, got a home five years ago, they were only paying 2.5 percent for those mortgages then. Mortgages today are about 6%. So that puts an additional incentive for you to keep that house with a 2.5% mortgage and maybe rent that house out. You’ll be able to break even much more rapidly or actually make money on that going forward, by keeping the 2.5% mortgage because it’s gonna be a long time, if ever, that we’re ever gonna get back to the area where people can get mortgaged at a 2.5% rate.

Terry Gerton Let’s drill into that buy or rent as you leave it decision a little bit more because you talked about your house being your hobby, being a long-term renter manager is a challenge as well. How do people really think about whether to sell that house as they leave or rent it out?

Mike Meese Well, the first thing is you probably need to realize that especially if you’re in the military, you’re busy with all kinds of other things, you’re not gonna be able to do that long distance. So you should assume that between 10 and 15% of what the rental price is gonna be is gonna go to your property manager, whoever it is that’s collecting the rent. If a toilet is running during the evening or a garage door breaks, you’re gonna be paying somebody that’s gonna take care of that for you. And of course, any expenses to maintain and upkeep the home are gonna be passed on to you. So you need to recognize that that is gonna be part of the expense of being a long distance landlord. On the other hand though, you’re equity value in that home is going to continue to increase. You’re going to continue to get rental income, and that can be advantageous to you. And so that if you can cover the mortgage, especially if, as I said, if your mortgage is at a relatively low rate, it can be advantageous for you to keep that home for a longer period of time.

Terry Gerton Mike, beyond just finding a new place to live, there are a lot of other expenses associated with moving from one place to another. What are some of the biggest ones that you’ve seen catch families by surprise?

Mike Meese Well, a lot of it is just some of the moving costs that you don’t anticipate. For example, you’ve got to move two cars from one side of the country to the other, and it may not make sense for you to drive both of them. And so consequently, you got to ship that car and the government may not necessarily reimburse you for that. The other is just what do you do in between the times when you’re moving from one place to the next where your family is essentially unhoused during that period of time. What I’ve always advised military families to do is to really make that fun, so that especially children can look forward to the permanent changes stationed. When we drove from Texas to Washington, for example, I had no idea that there were some great kids’ museums in Tennessee. And so we made an adventure stopping in Memphis at Graceland and stopping in Knoxville at kids’ museums. And our children really instead of thinking that this was a dread to be able to move and during a permanent change of station this actually became somewhat of a fun family vacation and I would encourage everybody to recognize that that’s an added expense but it’s an expense that’ll pay itself off in dividends both because the memories that you’re making and because your family then looks forward to the adventures that they’re going on when they’re doing a permanent change of station.