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If you're a member of the U.S. military, you may have heard of BAH (basic allowance for housing). The BAH is a monthly stipend paid to you while on active duty that helps cover the cost of housing. But what if you decide to buy a house? Does BAH still apply if you aren't stationed at an official base anymore?
What is Basic Allowance for Housing (BAH)?
On-base housing is limited so it's not uncommon for active-duty members to have to seek housing situations elsewhere. BAH is a monthly cash allowance paid to eligible military members on active duty when government quarters aren't available. This monthly allowance varies depending on your geographic location, your pay grade, and your dependency status.
There are some exceptions, but usually the higher the rank and years of service the larger the monthly allowance for BAH. Areas with higher average housing costs and larger metropolitan areas will tend to be more as well.
How is BAH calculated?
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The Department of Defense calculates BAH using a variety of factors such as the cost of rent and average utilities from around 300 military housing areas in the United States. Then they group the information into profiles for the various housing types like apartments, townhouses/duplexes, and single-family rental properties. It then links these profiles with pay grades and dependency statuses, determines total housing costs for each profile in the military housing areas, and calculates BAH rates for each military pay grade with and without dependents.
Although the current BAH rate is subject to change each year, the DOD has rate protection in place that prevents BAH from decreasing. The protection for the service member remains until they change stations, have a pay reduction, or a change in dependent status.
Can you buy a house with BAH or just rent?
Yes, you can! Although the monthly housing allowances are calculated based on the cost of a military member renting when government housing isn't available, there's no rule against buying a home with it. You can also use your BAH toward mortgage payments on a VA loan.
An important note: It's important to verify the amount you qualify for because if you spend less on housing than your eligible rate, you can use the difference for other housing expenses. However, if your mortgage is above your rate, you'll need to provide the difference somehow.
How to use BAH as a home buyer
As an active-duty military member, you can usually count your military allowances as income to help you qualify for a VA loan or home mortgage. And BAH is a great allowance for service members to take advantage of if you're interested in buying a home.
Because the rates are calculated based on each area's housing costs, service members stationed in more expensive areas are still able to compete in those housing markets and avoid bidding wars when buying your home. When lenders are looking into your VA home loan application they'll verify your BAH through your Leave and Earnings Statement or LES and will want to see that you'll continue earning the same rate.
Depending on the amount you're applying for, your BAH may cover some, or even all, of your monthly mortgage payment.
For example, an E-4 looking to buy a home in Summerville, South Carolina would receive a monthly BAH of $1,782. With a 4.5% interest rate, you could potentially be able to look at a home in the $350-$400,000 range.
BAH is a great benefit for military families and single service members alike to help offset the cost of living. It's good to know that when you buy a house, you still get BAH and can even use it as income when applying for a VA loan.
One important thing to keep in mind is that most active duty service members will have to relocate so it's something to consider if you're thinking of buying a home. In some areas, it may be easy to sell or rent your home when you receive your PCS orders, but it's not guaranteed. And your BAH in your current duty location does not transfer to the new station so you'll need to look at your budget whenever relocating.
Here at Charleston's Best Home Team, we've helped numerous PCSing service members with the sale of their homes - even taking care of the remaining work to get the home sold after they've shipped out. We're proudly designated as Military Relocation Professionals, so if you're considering buying a home in the Charleston area, but are concerned about relocating, make sure to give us a call or email so we can discuss your options and show you why you should use an MRP for your next move!