Understanding Basic Allowance for Housing (BAH)
02-24-2021 • MHS Lending
The Basic Allowance for Housing (BAH) is a U.S. based allowance that certain service members receive when there isn’t government housing available where they are. If you’re an active duty service member that does not live on base, you’ll likely already be familiar with this powerful allowance. There are multiple factors that go into determining what your rate of allowance is, and this allowance can be a powerful tool if you’re looking to start your home buying journey. Did you know that one awesome benefit of the VA Home Loan is that you can use your BAH towards your monthly mortgage payments?
How does basic allowance for housing work?
Often military members are able to take advantage of government housing. When base housing isn’t available, BAH is a program designed to provide fair housing allowances to service members. The rates are determined on multiple factors and are based on the market price of rental housing in the area and the area's average utility costs and renter’s insurance.
How are the BAH rates determined?
The amount you receive in your allowance varies based on your geographic duty location, pay grade, and dependence status according to the DOD Center for Travel Excellence. Higher payments are typically due to the cost of living where your base is located (major metropolitan areas), the amount of years you’ve been in service, and your military ranking. BAH also differs for those with and without dependents.
The allowance you receive most likely won’t be exactly the same as your monthly payments. If you receive more, you can decide to spend the leftover money on other expenses. On the other hand, if you receive less than your monthly payment, you’ll need to cover the difference. The DOD has released a BAH Calculator to help you quickly calculate your rate. It’s important to note that you will need to verify your specific allotted amount directly with the DOD.
Why isn’t BAH necessarily determined by where I live?
One of the most common misconceptions about BAH is that the amount is determined based on where you live (or intend to live). In fact, the allowance is calculated based on your duty location regardless of how far you choose to live from base. This means that as long as you know what your rate is and are comfortable with your finances, you can be picky about where you want to live.
If you happen to be stationed in a more expensive part of the country, this can also be a big benefit as your BAH may be higher. A high BAH can help give you the ability to be competitive if you’re looking to buy a home in cheaper surrounding neighborhoods.
The difference between buying and renting while using BAH
BAH rates are calculated based on current rental rates in the area rather than the housing market. Your allowance is designed to give you a fair amount based on the market surrounding your duty station, but it does not determine the type of home you have to rent and/or buy. BAH helps service members with their monthly housing costs when they’re living off-base. This means you are free to choose where you live and which type of property you rent or buy.
Do BAH rates ever go down?
BAH rates are subject to change on an annual basis, but the good news is, as long as your status with the military and base doesn’t change, your rate will not go down. Each year BAH rates typically fluctuate between 2% and 5% and you can determine this through the DOD’s frequently updated website.
Using your BAH to help you qualify for a VA Loan
Allowances like BAH are eligible to be counted as income towards your new mortgage when purchasing a home. That means that if you are receiving this powerful allowance, you can use it to help you qualify for a VA Loan and in your journey to buying a home. There are some circumstances when this powerful allowance can help you get the dream home you’ve always wanted. If you’re considering buying a home using a VA Loan and want to see if you qualify with your BAH it’s important to consult a lender who is well-versed in working with military families and veterans.
The VA Loan is the most powerful mortgage available exclusively to military members and veterans. With benefits like no down payment and no PMI, using your BAH to help you qualify for a VA Loan can be incredibly beneficial to you and your family. While you don’t have to use every penny of your BAH towards your monthly costs, you can work with a lender to help determine your pre-approval and the ideal house price to aim for.
At MHS Lending we are experts in helping military families and veterans navigate the home buyer journey. Our mission is to help those who have served (or are actively serving in the U.S. military) buy a home or refinance an existing mortgage. If you’re looking to take advantage of your hard-earned military benefits, give us a call at 619-728-7620.