Using Basic Allowance for Housing (BAH) on VA Loans

Basic Allowance for Housing and VA Loans

When it comes to your income and purchasing power, active duty military members can often count military allowances as effective income toward getting a mortgage. Probably the single most powerful allowance out there is BAH.

This monthly allowance is for qualified service members stationed in areas where government quarters aren't provided. It's a stipend that helps service members keep up with housing costs if they're living off-post or off-base. There aren't restrictions on BAH that limit service members to renting. You can use this monthly allowance to help you qualify for a VA loan and buy a home.

Additionally, your BAH could cover most or even all of your monthly mortgage payment.

Everybody's situation is different, and homeownership isn't the right fit for every active duty military member. But if you're getting BAH and you're interested in buying a home, it's a pretty incredible opportunity if the pieces come together.

How Basic Allowance for Housing Works

The Department of Defense (DoD) sets BAH rates on an annual basis, and the amount can vary depending on geography, pay grade and whether you have dependents. The Defense Department looks at current rental costs in the area and things like average utilities and renters insurance costs. The rate is based on a service member's duty location, not on the location of the residence.

Service members stationed in more expensive parts of the country typically have higher BAH rates, which allows them to compete more effectively in expensive civilian housing markets.

While BAH rates are subject to change each year, the government has instituted BAH rate protection that prevents your BAH from going down. This protection remains in place unless the service member changes duty stations, experiences a pay grade reduction or has a change in dependent status.

Mortgage lenders will typically verify your BAH through your Leave and Earnings Statement (LES), and they'll want to feel confident you're likely to continue receiving it.

BAH Types

BAH rates vary based on factors like rank, location and dependent status. But there are also different types of BAH tailored to specific situations.

Here’s a quick look at how they compare:

Basic Allowance for Housing and Buying a Home

Let's build a couple of basic examples to show you what BAH can mean for a homebuying budget.

To help us create a consistent and more realistic picture of purchasing power, let's assume the following information:

• You're an E-4 with dependents
• You have a 6.5% interest rate for a 30-year fixed-rate VA loan
• Your monthly payment includes property taxes and homeowners insurance
• We'll look at BAH at two different duty stations: Fort Campbell in Kentucky and Fort George G. Meade in Maryland

The average monthly BAH rate for an E-4 at Fort Campbell with dependents is about $1,770. Using just this $1,770 as your housing budget, you could roughly look to buy a $280,000 house based on our example loan parameters. That purchasing power is based solely on your BAH rate.

If you wanted to pump another $500 a month from your monthly base pay into your housing budget, you're now talking about a monthly mortgage payment of around $2,270. At that amount, your purchasing power jumps to about $359,000, just by putting $500 of your regular pay toward housing each month.

Now, let's look at a more expensive housing market. The average BAH rate for this same E-4 stationed at Fort George G. Meade is about $2,680.

With the same example loan parameters as before, just that $2,680 BAH payment could buy you a $424,000 home. Putting that same $500 from your regular pay toward housing in this market pushes your purchasing power to about $503,000.

Note: These calculation estimates are based on the example scenario. Actual affordability may vary based on specific property tax rates, insurance costs and other factors.

Putting Basic Allowance for Housing to Use

Now, you certainly don't have to push your BAH to the limit. Depending on your housing costs, it's possible to have BAH left over each month to pay for things like utilities and other household expenses. But it's also important to understand that BAH may not cover your entire mortgage payment.

Remember, changes to your service or your family situation can affect your BAH rate. Most active duty homeowners are going to relocate. In some military communities, it might be easy to turn around and sell or rent out your home when the time comes to PCS. But there are no guarantees.

BAH can be an incredibly powerful tool for VA homebuyers. Talk with a Veterans United VA loan specialist at 855-259-6455 to discuss your specific situation and what might make the most sense given your homebuying and financial goals or get started online today.

A final note: Basic Allowance for Housing for active duty military members is different from the monthly housing allowance provided to Veterans utilizing their Post-9/11 GI Bill education benefits. Lenders will not count educational assistance income toward mortgage qualification.