How to get a home loan if you're in the defence force

Applying for a home loan as a defence force worker could be quite a different experience when compared to salaried professionals. Lenders can easily verify the borrowing capacity via payslips and bank statements. However, as a military worker, part of your financial compensation is often in allowances that might not be viewed favourably by some lenders.

There are also benefits that you enjoy on home loans if you’re a defence worker, whether currently serving or retired. These are typically dependent on how many years you have served and at what level.

The amount you can borrow with a military home loan depends on multiple factors, including how long you have served. If you’re an Australian defence force worker who’s been serving for several years, you’re typically drawing a good income. This would mean you should be able to borrow more than 80 per cent of the purchase price. However, a lender may require you to purchase Lender's Mortgage Insurance (LMI) which protects the lender against financial loss if you default.

Some lenders are more conservative than others and may limit the amount you can borrow, based on your salary alone.

Most lenders will approve your defence service home loan with just a 5 per cent deposit. If you’re using a guarantor who takes responsibility for your home loan if you can’t repay it, you might apply for a no deposit loan. You may also be eligible for a scheme such as the Home Purchase Assistance Scheme (HPAS) and First Home Owners Grant (FHOG). Both of these schemes can help you financially with your purchase.

As an Australian Defence Force (ADF) member, you can take advantage of schemes to support defence service members with their home loan such as:

• Defence Home Ownership Assistance Scheme (DHOAS): This scheme is available to all members of the military, current and former. It will provide monthly compensation to help support your home loan payments. To be eligible for this scheme, you’ll need to apply within five years of serving as well as needing a minimum length of time served in the ADF.

• Home Purchase Assistance Scheme (HPAS): If you are eligible for this scheme, you’ll receive a one-time taxable lump sum amount. This can then be used to cover the upfront costs of applying for a home loan, including application and conveyance fees. 

Depending on your rank and tenure of service, you could be eligible for both schemes. Check with the ADF directly to know whether you qualify.

The DHOAS is managed by the Department of Veteran Affairs on behalf of the Defence Department. There are currently three lenders that have authority to offer DHOAS home loans, The Australian Military Bank, Defence Bank and NAB.

All three lenders have specifically designed military home loan products that suit the requirements of military personnel. Defence Bank and Australian Military Bank being explicitly established to cater to the financial needs of ADF personnel. You can also speak to a mortgage broker to help you review if you’re eligible for these schemes and which lender would be best for you.

Applying for a defence home loan is just as easy, whether you're posted within Australia or overseas. What might differ is the process based on whether you're just working at a base or are in actual combat:

• Working at the military base: It doesn't matter what your role in the ADF is. You could be an engineer, a cook, an administrative officer or a medical officer; whatever your position you can apply for a home loan from overseas. Any paperwork that requires your signature can be sent to you directly. Even if you're on a naval ship in the middle of the ocean, the documents can be emailed or faxed to you through secured communication. Most lenders will not accept a Power of Attorney (POA) in such a situation since you can be contacted to complete all necessary formalities.

• In combat: If you’re part of a covert military operation or on tour, you might not be in a position to confirm your exact location for security reasons. In such cases, most banks will be willing to accept a POA to act on your behalf to sign documents.

Even when overseas, your base is still considered to be Australian soil, hence no certification or authorisation of documents is required from a consulate or an embassy.

If your overseas posting exceeds six months, it could be considered long-term. In which case, you could be eligible for several attractive benefits and allowances. The idea behind these is to compensate for the cost and inconvenience of relocating and setting up residence overseas. Depending on your rank and length of service in the ADF, you could also be eligible for a home loan subsidy.

The ADF has a defence housing loan that high ranking military personnel with a considerable salary can apply for. These loans are available at highly discounted rates, making it easier for ADF personnel to own a home. Check with the Defence Housing Credit Union to know which bank has an agreement with it for this government-initiated loan.

You can also get a second mortgage on your defence housing loan, and based on your eligibility, you could borrow up to 95 per cent of the property value. However, the lender might ask you to pay LMI on the borrowed amount.

If you've served in the ministry of defence, often serving Australia overseas, then you qualify as a military veteran. This means you may receive a veterans pension to financially contribute towards your expenses.

The veteran's pension (also called the defence pension) is paid to an individual who has either personally served in the armed forces or is a dependent of someone who has. A war veteran widow is also eligible to receive this pension.

If you're applying for a home loan as a retired ADF member, you could still be eligible for a defence home loan on your veteran's pension. All you’ll be required to show is proof that you are financially capable of making repayments, and that your income will continue until the loan term ends. Only a few lenders are willing to accept a veteran's pension as a source of income, so you could check with an experienced mortgage broker before you apply for the loan.

To qualify for a defence home loan, you’ll not only need to demonstrate that you have a constant, on-going income. You will also have to show that you’re also receiving a particular type of acceptable veteran pension. Most lenders look for the following pensions when considering your loan application.

• Service and Age Pension paid by the Department of Veteran Affairs
• War Widow's or War Widower's Pension from the Department of Veteran Affairs  
• Other pensions may also be acceptable if they are permanent and on-going. Check directly with the lender if you’re unsure.

A veteran pension is a guaranteed and regular income which will continue until the end of the loan term, and this helps to satisfy the lender’s conditions. Therefore, you could be eligible for the same discounted home loan interest rates as people with an income from a regular job.

You could be in the army, air force or navy, working in active combat or serving as support staff. As part of your responsibilities, you might have been required to work overseas. This makes you eligible for various allowances and benefits to take care of any additional expenses that you might have incurred.

However, some banks have a more traditional approach to lending policies and are not willing to consider these allowances while calculating your loan eligibility. The trick is to find lenders who are willing to consider these allowances to help with your Australian Defence Force home loan application.

The types of allowances you might receive include:

• Defence service accommodation subsidy: While living at a military base, you may receive an allowance to live in Defence Housing Authority accommodation.
• Private rent allowance: If you're renting your accommodation from a private rather than military owner, the military will give you a rental allowance to cover the cost.
• Uniform allowance: You might also receive an allowance to help take care of your clothing and uniform.

Some lenders might not accept your rent allowance for private accommodation. This usually happens because Defence Housing Australia subsidises the rent monthly, whereas military personnel are paid fortnightly.