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Mortgage Research Center — NMLS #1907
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Basic Allowance for Housing, or BAH, is a tool that can help VA lenders gauge what kind of mortgage payment an eligible veteran can handle.
Service members receive a monthly allowance to cover housing expenses based on their rank, dependent status and geography. The money allows service members to keep up with the unique costs of civilian rentals in changing real estate markets.
BAH payments can be used to help defray monthly mortgage costs, but mortgage payments are not part of the allowance calculation.
Because of the link between rates and real estate prices, service members who live in costlier areas will typically have higher housing allowances. The current BAH system allows some veterans to live in civilian rented without any out-of-pocket expense, according to the Department of Defense.
Depending on the geography, a service member may have to cover some of the costs. For example, let's take a service member who lives in a two-bedroom apartment and pays $1,000 per month in rent and utilities. If the local median cost for that type of residence is $1,200 per month, the service member must cover that $200 gap. On the other hand, if the median rent is $900, the service member can dedicate that extra $100 to additional needs.
BAH rates can fluctuate each year, but there are protections in place to help safeguard service members subject to a decrease.
The government calculates the median housing costs by looking at a host of data sources, including residential vacancies, rental listings, telephone interviews and real estate agents. This information is gathered once a year, covering a local area's apartments, town houses and single-family rental units.
It is important to note that a service member's duty location, and not his or her residence location, is used as the basis for BAH.
The Department of Defense has an easy-to-use BAH rate query that allows service members to determine their allowance by inputting their rank and Zip code.
Basic Allowance for Housing funds can help service members achieve the dream of homeownership. BAH may not cover an entire mortgage payment, but it's verifiable and typically reliable income that can be used to calculate a prospective borrower's debt-to-income ratio, a key factor in loan underwriting.
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