Buying a home with LQA or OHA
Considering buying a home while stationed in Europe? Right now is a good time to look for homes to purchase. The recent worldwide economy fluctuation has created a surplus of homes for sale, so it is a buyer’s market.
U.S. military and DOD civilians living in Europe have a great opportunity to utilize their overseas housing or living quarters allowances (OHA or LQA) to help pay down their mortgages. The monthly allowance amount is adjusted based on the price of the house, not the financing schedule. With the right financing, you may even see a surplus of allowance funds each month. This can be beneficial for home repairs or upgrades.
The tax-free allowances can be used for up to 10 years toward the mortgage, so keep in mind that on average, mortgages for U.S. citizens buying homes in Europe are from 11 to 20 years. Many choose to move from the home before or at the end of the 10-year period to lease the property and continue to pay the note.
Buying a home, no matter where you live, can be confusing, with all of the contracts and legal documents you must sign. However, purchasing a home in a non-English speaking country brings the additional language barrier obstacles. Once you find a home to buy, have all financial and legal documents translated and explained to you before the closing procedure. Contact the local housing office or legal services office on your installation; they may already have translated information that can help you or can translate and explain documents for you.
You can also utilize the services of an experienced professional who understands the procedures and can help with translations. Robert Mitchell, with Mitchell Consulting, is the spouse of an active duty Air Force service member, and has been helping U.S. citizens in the Kaiserslautern Military Community purchase homes for several years. “Buying a home is a great investment. Interest rates are low, and home prices are more stable, and do not fluctuate like they do in the U.S.,” says Mitchell. His services include helping the buyers find the right home, secure financing, translate documents and move the paperwork through the German legal system.
Mitchell also stresses that buyers should understand the differences in mortgage agreements and payment procedures between host countries and the U.S. For example: unlike in the U.S., where you can pay down mortgage principals outside of your loan agreement with additional payments, you may not be able to do so in Germany, unless those payments are specified in the loan agreement. Doing so could lead to steep penalties. Mortgages in Germany are designed to be paid in their specific time frame and payment schedules, whether 11, 15 or 20 years. Mitchell states that buying a home to “flip” or make a quick profit should not be your intention. “Buying a home as your residence or as rental property is the reason to buy. And, having your documents translated and understanding the documents and their legalities will assist in making your investment profitable.”
Although U.S. taxpayers are permitted to itemize deductions and deduct mortgage interest and property taxes paid on their home, the IRS does not permit taxpayers who receive tax-free LQA or OHA to itemize mortgage interest and property tax payments. Also note that owning a residence and being a legal resident are not the same. Be sure you comply with host country status of forces agreements during the purchase.
For more information about purchasing a home and to learn more about your host country SOFA agreements and tax laws, contact either your housing or legal offices on your installation. If you are stationed in Germany and seek additional help with the home buying process, you can also contact Robert Mitchell at firstname.lastname@example.org.
The exciting venture of home ownership in Europe is definitely one to consider, and having the right information and tools will help you make the best investment.