Bah Meaning Military - Using Basic Allowance for Housing (BAH) on VA Loans An incredibly powerful benefit of VA home loans is the ability for military members to use their Basic Allowance for Housing (BAH) toward their mortgage payments. The BAH rate depends on many different factors, so it is important to verify your amount with the DOD.
Basic Allowance for Housing, or BAH, is a monthly allowance paid to eligible service members when government housing is not available. BAH calculations vary by geographic location, pay grade, and dependency status.
Bah Meaning Military
In general, service members with higher ranks and more years of service receive a larger monthly BAH allowance, although there are exceptions. Rates also tend to be higher in larger metropolitan areas or regions with higher costs of living.
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BAH rate tables are compiled annually. If you decide to spend less on housing than your eligible rate, you can use the difference for other expenses. However, if your housing expenses exceed the predetermined BAH rate, you will have to make up the difference yourself.
As for your income and purchasing power, active military members can often count their military allowance as effective income to get a mortgage. Probably the most powerful allowance out there is the Basic Allowance for Housing (BAH).
This monthly allowance is for eligible service members stationed in areas where government quarters are not provided. This is a grant that helps service members keep up with housing costs if they live off-post or off-base. There are no BAH restrictions that limit service members from hiring. You can use this monthly allowance to help you qualify for a VA loan and buy a home.
Now, to be sure, everyone's situation is different, and home ownership is not the right fit for every active duty military member. But if you get BAH and are interested in buying a home, it's a pretty incredible opportunity if the pieces come together.
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The Department of Defense sets the BAH rate on an annual basis, and the amount can vary by geography, pay grade, and whether you have dependents. DOD looks at current rental prices in the area and things like average utilities and renter's insurance costs. The rate is based on a service member's place of employment, not residence.
Service members stationed in more expensive parts of the country typically have higher BAH rates, allowing them to better compete in the more expensive civilian housing market.
While BAH rates are subject to change each year, the Department of Defense has instituted rate protections that prevent your BAH from going down. This protection remains in place unless the service member changes job position, experiences a reduction in pay grade or has a change in dependent status.
Mortgage lenders will usually verify your BAH through your Leave and Earnings Statement (LES), and they'll want to be confident that you're likely to continue receiving it.
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Yes, because BAH is not taxed, VA lenders can "add up" this income to essentially create a pre-tax, or gross, figure to calculate your debt-to-income (DTI) ratio.
Let's build some basic examples to show you what BAH can mean for a home buying budget.
To help us create a more consistent and realistic picture of purchasing power, let's assume the following information:
The average BAH rate for an E-4 at Fort Campbell and dependents is about $1,600. Using just that $1,600 as your housing budget, you could be looking at roughly buying a $205,000 home based on our example loan parameters. This purchasing power is based solely on your BAH rate.
Basic Allowance For Housing For Service Members
If you were willing to pump another $500 a month from your monthly base salary into your housing budget, you're now talking about a monthly mortgage payment of about $2,100. In this amount, your purchasing power jumps to $270,000, just don't put $500 of your usual salary for housing each month.
Now let's look at a more expensive housing market. The average BAH rate for the same E-4 stationed at Fort Belvoir is about $2,600.
Using the same parameters of the example loan as before, just that $2,600 BAH payment could buy you a $335,000 home. Putting that same $500 in your regular salary toward housing in this market pushes your purchasing power to about $400,000.
Answer a few questions below to speak with a specialist about what your military service has earned you.
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Now you certainly don't have to push your BAH to the limit. Depending on your housing costs, you may be able to get monthly BAH 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.
Also remember that changes in your employment or family situation can affect your BAH rate. Most active homeowners will move. In some military communities, it can be easy to turn around and sell or rent your home when it's time to PCS. But there are no guarantees.
BAH can be an incredibly powerful tool for VA homebuyers. Talk to a Veterans United loan specialist at 855-259-6455 about your specific situation and what might make the most sense given your home buying and financial goals.
One final note: The Basic Housing Allowance for active military members is different from the monthly housing allowance given to veterans using their post-9/11 GI Bill education benefits. Lenders will not count educational assistance income toward mortgage qualification.
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Chris Birk is the author of "The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits."
A former award-winning journalist, Chris writes about mortgages and home buying for a wide variety of websites and publications. His analysis and articles have appeared in the New York Times, Wall Street Journal, USA Today, ABC News, CBS News, Military.com and more. Basic Allowance for Housing (BAH) is a tax-free allowance to help reduce the financial burden for military members moving from one area to another. Military families, as you're probably well aware, tend to move a lot and the cost of living varies from region to region across the country. It's no secret that the cost of renting or owning a home in Hawaii is much higher than one in Kansas. As a result, the US military offers this grant to make up the difference when and where government housing is not available.
There are several types of BAH to meet the different housing situations that arise among military members. In general, the amount of BAH you receive depends on where you are, your pay grade, and whether you have dependents. In most circumstances, you receive BAH for where you are assigned, not where you live. In addition, you may be entitled to some BAH amounts if you live apart from your dependents. This occurs in situations where unaccompanied foreign travel is involved or where a dependent child lives with an ex-spouse. The rules regarding these situations can get quite complicated. Consult your Finance Office for more information on these complex situations. This information comes directly from the Compensation page of the Department of Defense website.
Several factors are considered when calculating BAH…marital status, rank, dependents and location. Married service members receive a higher allowance than single service members. The higher the rank, the higher the BAH payment will be. Regardless of marital status, service members with dependents generally qualify for a higher BAH allowance than those without, but the number of dependent children a service member has does NOT affect BAH payments. Location, as previously mentioned, is the most important factor in calculating an individual's BAH payment rate. It is important to note that the payment is based on the region/location and not an individual's actual rental agreement.
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Payments are calculated monthly but are given every two weeks per month (ie the 1st and 15th of the month). The payments are tax-free and available to service members as long as you are active in the military and not living in base housing or stationed on a ship. Members of the National Guard or Reserve who are called to active duty are eligible to receive payments for rent or mortgage payments (in your civilian life).
At this time, each department budgeted the 2021 Basic Allowance for Housing (BAH) to increase by an average of 2.9 percent to 3.7 percent. The budget increase is an average for all areas and the actual rates will continue to be determined by the individual location based on the current local rental housing market survey process. The 2021 BAH increase will go into effect on January 1, 2021, and service members will see their pay increase on January 15, 2021.
Thousands of jobs, the Scholarship Guide and the biggest corporations. You will also receive our newsletters with jobs, schools, public service announcements and special discounts for you. Serving in the military can have interesting benefits, and they include housing benefits. While some troops may be wary of spending their paychecks on off-base rental properties, BAH helps you cover those costs. This benefit can help you expand your life horizons and be a welcome financial aid when base housing is not available. Learn more about military BAH pay and how it works
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