For active servicemembers, the Basic Allowance for Housing (BAH) is a handy boon if they are stationed in an area where housing is not provided by the military. The BAH is a monthly stipend or “allowance” for active servicemembers to use to rent or pay for decent housing. The BAH can also be very useful in helping to establish an easily-measured proof of the ability to pay of the veteran. The BAH doesn’t have to be used for a mortgage payment – it is most commonly used to rent an apartment, but if coupled with the VA Loan Guaranty, the BAH can be a huge help in getting a servicemember and his or her family a home to live in much sooner.
The BAH rate is tied to the local zip code, and thus can vary widely across the country. In areas where housing is generally more expensive, the BAH rate will also be higher. Conversely, in areas where cost of living is lower, the BAH allowance will not be as much. With this variance also comes a degree of fluctuation; that is, as the cost of housing goes up or down within a zip code, the BAH rate will also go up or down. This inconsistency sometimes causes a lot of grief for servicemembers who rent an apartment based on how much they are getting from the BAH, then have the rate change on them while they’re in the middle of the lease. There is a certain amount of protection from this sort of thing, however.
BAH protection allows servicemembers to keep the old amount they are still eligible for in the event that the BAH rate goes down. There are several categories of persons, however, that are not covered by this protection. If you receive permanent change of station (PCS) orders, and move to a zip code with lower cost of housing, you’ll receive the BAH rate for that zip code without really any exceptions. While renters can to a degree shrug that off, it can create a headache for someone who has been using it to make a mortgage on a VA loan. If they were not able to sell their home before the move, they might be stuck with a monthly mortgage payment for their old place, a rent payment for their new place, and less allowance than they were previously getting. While this is only a concern for those who choose not to sell their homes, it can make it difficult for someone to maintain a home to live in after service is completed.
A change of marital status will affect your BAH rate no matter what. If you were originally single when you moved into a certain zip code, you began receiving the “without dependents” BAH rate. Upon getting married, you will receive the “with dependents” BAH rate, which is higher. While that is a great thing, it’s important to realize that the opposite happens in the event of a divorce. If you’re getting the “with dependents” BAH rate in a certain zip code and then get divorced, you will be dropped back down to the “without dependents” rate. This can be problematic if you decided to move into a larger apartment to accommodate the two of you, or perhaps even decided to buy a home with a VA loan. While it probably won’t be a factor when considering a divorce, it should definitely be a factor when considering getting married and while making decisions about where to live after you get married.
A contributing factor to the BAH rate you will receive is your rank. As such, a demotion or promotion will impact (perhaps substantially) your BAH rate eligibility. Regardless of the reason, a demotion will result in a lower BAH rate and a promotion will result in a higher BAH rate.
As far as leveraging the combined power of the BAH benefit and the VA loan benefit, there are a few things that are important to know. First, the BAH rate is based off of the local renting averages, not mortgage averages. So if you plan on using the BAH to help cover your mortgage, it would be wise to keep in mind that the amount you get from the BAH may not be independently sufficient. If you’re hoping to keep the home that you’re currently paying a mortgage on, it may be in your best interests to take advantage of the BAH benefit to make double payments on your mortgage. Obviously, you should evaluate your budget and determine if this is a wise (or even possible) course of action, but if the BAH single-handedly knocks out your mortgage payment, adding on top of that will significantly reduce the amount of interest that you pay over time and help you pay off the home faster. For example, if you make double payments on a 30-year mortgage, you will actually slice about 20 years off of it; you’ll be paid off in 10 years. Often, it’s not possible to make a double mortgage payment, but if you can, and you hope to keep your home for a long time, it is probably worth it.