If you found this article, it’s likely you are an overseas deployed servicemember, family member of one, or a civilian supporting the overseas mission. And if you only recently began your overseas assignment or are still a few years away from your next move, maybe you haven’t put much thought yet into what’s coming next. But many of those deployed abroad will eventually end up returning to the USA, and likely in need of finding their next residence. While a lot can change in terms of market conditions and personal circumstances between now and then, wouldn’t it be nice to maximize the options available to you whenever the time comes? The military (and civilian) expat that takes advantage of their time abroad can put themselves in a stronger position to reach their home purchasing and investment goals. Here are four big advantages, as we see it:
Advantage #1. Improving Your Credit Score
There’s not much you can do to instantly change your credit score; it requires a decent
amount of TIME to establish or change your credit track record. Fortunately, overseas assignments typically offer a prolonged period where many of your basic needs are provided for (by the government or your employer) and your demand for credit on luxury items is less than it is in your normal CONUS life. Use that advantage wisely to lift your credit
score into the ‘Very Good’ to ‘Excellent’ range. You can learn more about improving your credit score and get your own free credit check here. You are entitled to one free credit check per year from each of the 3 credit reporting bureaus (Experian, Transunion, and Equifax); that’s a total of 3 that can be spaced throughout the year if you want to closely monitor your credit score. Aim for a FICO score of 800+ to qualify for the lowest possible mortgage interest rates available. Just a 1% difference in interest rate can mean HUNDREDS OF THOUSANDS less in interest payments over the life of a 30-year mortgage! (For example, a $500K loan at 4% will cost $1.03 million in interest payments over 30 years, while the same loan at 5% will cost $1.35 million in interest, assuming only minimum monthly payments are made over the full 30 years!).
Keep in mind, when it comes to credit score there can be a DISADVANTAGE to having less need for credit while serving overseas. While it may be a good thing not to have monthly car payments, an existing mortgage, or nearly as many credit cards in your wallet, those normal payment obligations are what’s used to build and maintain credit history. The most fiscally responsible person that avoids all kinds of debt may have a sub-optimal credit score. So, it’s wise to keep tabs on your score even if you feel safely free of debt; if you’re score isn’t where you expect, it’s possible you haven’t established ENOUGH credit utilization. For most people, the best way to improve a score is to consistently make all bill and credit card payments on time. Don’t be afraid to take on responsible amounts of credit and debt. Try to keep revolving debt, such as credit card balance statements, to no more than you can pay off each billing period. As you get closer to applying for mortgages, avoid other large purchases and credit applications; excessive hard credit inquiries may lower your credit score as it raises a flag that you might be trying to take on more debt than your credit score otherwise suggests. Which leads us to your next advantage…
Advantage #2. Controlling Your Debt
Unless you are the rare individual with several $100K in cash laying around to buy a house, chances are you will be applying for a mortgage loan to source most, if not all, of the purchase costs. Just as lenders will look at your credit score to determine the risk of letting you borrow their money, they will calculate your debt-to-income ratio (DTI) to determine how much they can give you with some confidence that you can pay it back. While maximum DTI ratios are not set in stone, the general standard for a VA Loan is 41%; other loan products vary from 36-43%.
That means all your monthly debt (including the mortgage payment you’d be taking on) will need to be below 36-43% of your gross monthly income (41% for VA). If you are active-duty military, your income is probably fairly fixed, easy for a lender to verify, and reliable (which lenders like to see)…all good news! That means the portion of your DTI you have the most ability to influence during your overseas tour is the debt component. As we alluded to above, not all debt is bad. Properly managed debt allows you to establish a strong credit score. If you have an existing mortgage on a home while you are deployed but are receiving rent that covers your mortgage payment and expenses, that would be an example of good debt. But high credit card balances are an example of BAD DEBT and should be avoided when applying for a home loan.
Some good news is that you may be in a stronger position to reduce your debt by living overseas for a few years. It should be easier to limit larger purchases when you know your living arrangements are likely temporary. You can probably get by with a more modest car than you normally drive back home. A lot of your other household items may also be second-hand. And more of your normal housing expenses are possibly covered by the government or your civilian employer. Consider all of these as opportunities to re-direct some of your normal spending habits toward paying off existing debt. Additionally, many active duty servicemembers and civilian employees receive various extra pays while serving abroad, either as extra incentives or to offset certain expenses that can arise from living in a foreign market: Cost of Living Allowances (COLA), combat zone tax exclusions, dislocation allowance, family separation pay, etc. Some may also benefit from the timing of a reenlistment bonus, aviation bonus, or other instances of lump sum bonuses. Take advantage of these extra pays over the course of your overseas tour to pay off your bad debts…and then you can move on to saving...
Advantage #3: Saving for a Down Payment
Many of our readers will be eligible for the VA Home Loan benefit, undoubtedly one of the most powerful financial benefits available to any homebuyer. The benefit enables the eligible buyer to purchase a home with ZERO down payment and without any penalty charges that accompany most other low down payment products. But just because you CAN use the full benefit, doesn’t necessarily mean you should if you don’t NEED to, and having the ability to put at least some money down may significantly increase your home buying options and your future financial stability as a homeowner. Some benefits that a down payment can provide include: increasing purchasing power, enabling more competitive purchase offers, decreasing appraisal risk, lowering monthly payments, and protecting against future down markets, price depreciation or unforeseen changes in personal financial circumstances.
So if you are serving overseas for an extended period and you have done a good job controlling your debt, start putting some of those extra financial ‘bennies’ mentioned above toward saving for a down payment. You can consult with a financial advisor to determine how best to make that down payment fund grow as productively as possible, just be sure to keep it in an account that is liquid enough to tap into when you are ready to make purchase offers. And if you end up not needing it for a home like you intended, then it can always be put to a different use or continue growing in your portfolio.
Advantage #4: Developing Your Homebuyer Focus
This one is more about converting a known disadvantage into a mindset that can work to your benefit. The disadvantage of starting the homebuying process from overseas is dealing with all the logistical challenges that come from being a half a world away from the homes you are looking to purchase. You may be lucky to get a single house hunting trip to the area, but what if you don’t find something that works out in that brief period? Repeat trips are probably logistically out of the question. And overseas moves can be quite a bit more complicated than a cross-country or cross-town move. You likely have a ton of tasks on your plate to get re-indoctrinated to your CONUS lifestyle; adding the huge task of buying a home close to your move date can get overwhelming real fast. Another challenge you’ll face is finding real estate professionals to assist you through this process that can effectively cater to international clients. Even some of the best agents in their markets may not be sympathetic to some of these specific challenges you are dealing with from overseas because it doesn’t apply to their typical clients. And whenever significant time zone differences are at play there are multiple ways that communications can start breaking down or get delayed. Bad communications lead to disappointments with customer service and further frustrations with the overall process.
So how can you convert these disadvantages to your benefit? Simply by recognizing with enough foresight that they are issues waiting for you when you reach the time to enter the buyer market. In your normal life back in the States, if you’re happy where you are, you’re probably trying your best to stay there and not thinking much about the next move until the reality of a new set of Orders convinces you it’s time to start thinking about it. But as a military expat, even if you are thrilled to be at your overseas post, it’s likely you recognize your living situation as temporary from Day 1 of your assignment. It may be a couple years till you know where you are going next, but you at least know that it will be somewhere different, and you may even know that you’d like to be positioned to buy a house wherever it ends up being. So right away you can start executing some of the financial strategies we’ve outlined in this article! Before you know what towns and neighborhoods to start investigating, you can begin to identify your homebuying goals and general criteria that’s important to you and your family. What are your needs vs. nice-to-haves in a home? In the surrounding neighborhood and location? Will buying (versus renting) be a wise financial goal for you? Then, when you eventually find out where you are going, you can apply your well-refined criteria to researching specific neighborhoods and virtually exploring the area. Your goal should be that by the time you have 1 or 2 weeks on the ground to do some house hunting, you spend less time exploring, and more time conducting targeted hunting in the 1 or 2 areas you’ve already narrowed your search to. That is what we refer to as a FOCUSED HOMEBUYER.
Of course, at Onwing Expat Realty, we are equipped to help you start becoming a focused homebuyer regardless of how long it will be until your next move and whether you know your next destination. There are steps we can start taking together TODAY. Our customer service is tailored specifically to the needs of overseas homebuyers. One of our primary goals is provide timely, reliable, and personalized communications that exceed the capabilities a CONUS-based agent can provide. We want you to complete your homebuying journey confident that you made a wise personal and financial decision, assisted by people that you trust.
You are now ready to leverage your time overseas to achieve your homebuying goals!
If you're stationed overseas there may be no better time to strengthen your credit score, eliminate your bad debt, increase your savings, and develop your focused homebuyer mindset. Even if you don’t end up buying a home when you conclude your overseas tour, the above strategies are consistent with sound financial habits that will benefit anyone and get you closer to whatever your investment goals might be!
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