How to Use Your Basic Allowance for Housing [BAH] on a VA Loan

Posted by Lauren Schneider on Tuesday, January 12th, 2021 at 9:14am.

How to Buy a House with a VA Loan and Your Basic Housing Allowance (BAH)The Basic Allowance for Housing (BAH) is an incredible financial benefit that can be leveraged by eligible military members and their families to find a home.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

What Is Basic Allowance for Housing?

The Basic Allowance for Housing is a monthly stipend to help pay for off-base housing. These funds ensure that individuals who do not qualify for on-base housing still have access to quality housing. There are three broad categories of service members who are able to qualify for BAH:

  • Individuals who are required to live off-base because there is a shortage of housing on base
  • Married soldiers of any rank who do not live on the base
  • Single officers and single enlisted individuals

Military members who fall into any of these categories will receive a stipend each month to cover housing costs. The specific amount of the stipend is linked to rank, dependents, and the local cost of living.

The full BAH does not need to be applied to housing. People who are able to find housing for less than they receive in their stipend are able to save the rest or apply it to other bills. By the same token, if housing costs are higher than the BAH, that money must be paid out of pocket.

The BAH also has the benefit of being tax-free. This means that eligible individuals receive money that they can use for housing and other expenses without having to report it as income on their taxes.

How Do VA Loans Work?

VA loans are no down payment mortgages offered to members of the military. These loans are backed by the Department of Veteran Affairs and can be used to buy a primary residence or to refinance an existing loan.

To qualify for a VA loan, a current military member or veteran must meet certain service requirements. These can be met through 90 days active duty during wartime, 181 days during peacetime, or six years of National Guard or Reserves service.

How to Use BAH to Qualify for a VA Loan

While many people choose to use BAH to rent a home, that is not their only option. Basic Housing Allowance can also be used as part or all of a military member's funding to buy a home. When combined with the very favorable terms available under a VA loan, this gives military members a great deal of buying power.

Lenders recognize BAH as an income source because it is a regular, government-provided payment. This can be added to any W-2 income or other income a family receives. In the end, this means a higher income, which can allow military members to qualify for a VA loan.

Part of the power of the BAH is that it allows individuals to show a better debt-to-income ratio. Every lender wants to look at a potential borrower's income versus the amount that they spend on debt. The boost provided by BAH will provide a better ratio, which can mean qualifying for a larger home loan.

Because BAH is pegged to the cost of living in a specific area, there is also a good chance that the stipend will cover the borrower's entire mortgage payment each month. This provides a great deal of security for those who wish to build stability through homeownership.

How Much Is BAH Each Month?

There is no one set answer to this question. The BAH amount that any individual will receive is dependent on local cost of living, rank, and the number of dependents.

The VA loan program takes this into consideration when providing home loans. In every part of the country, in fact, the VA loan program has maximum guaranteed loan amounts that are pegged to the Basic Allowance for Housing in that area. Because of this, most people who are using Basic Allowance for Housing as income when qualifying for a VA loan will find that the amount of their monthly mortgage and the amount of their BAH are closely linked.

Homeownership is one of the most powerful tools for building a secure future. BAH is one of the best resources available to active duty military members for buying a home. By using BAH together with the power of a VA loan, individuals can qualify for a better loan deal and be sure that their monthly mortgage costs will be within their means.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

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