Using BAH and Other Military Payments to Quality for a Home Loan
When purchasing a home, it helps to utilize all your available income sources. For many people, this means simply verifying your regular salary, but for military personnel, it means you have to document all the various forms of payments.
BAH payments, for example, can be used to demonstrate a higher income, which in turn will create useful benefits towards your borrowing ability.
Even if you don’t plan to purchase a home in the near future, you should understand BAH payments and how they can be used to get an affordable mortgage loan.
Military BAH to Qualify for VA Loans
If you are an active or former member of the United States military, you likely already know the details of Basic Allowance for Housing, or BAH. This is a payment available to military personnel that helps provide financial support for housing, including VA loans. The housing that is purchased using the BAH can include just the individual service member or any dependents, which is usually the service member’s spouse and children.
This allowance is given when the service member is not living in government housing and instead has to pay for their home. This benefit is a non-taxable payment that is paid on a monthly basis, and the amount that is paid is determined by many factors, including pay grade, where the service member is stationed, and whether or not the service member has dependents. (The allowance will generally increase with the number of dependents.) Compensation for this payment is also dependent on the cost of living where you will purchase a home, including rental data.
There is also rate protection for this payment. This ensures that if your BAH is at a certain level, it will not go down if you move to a new location that has a lower cost of living; it will only stay the same or go up.
Other Payment Options Available to Military Personnel
There are other forms of payments outside the BAH that can be used to qualify for a mortgage loan. These payments and allowances are granted to various personnel for a wide variety of reasons.
Basic Allowance for Subsistence
One of the other available payments is called the Basic Allowance for Subsistence, or BAS. This allowance is meant to balance the costs of food for service members, and its total is linked to the price of food in the area. It is adjusted annually based on a food-cost index that is set by the USDA. While this payment is meant for food, showing that you receive added income for meals will give lenders a closer picture of your total income, which can be extremely important when you begin seeking a mortgage loan.
Special and Incentive Pay
A wide variety of military income payments fall under the category of Special and Incentive pay (S&I). This is pay that is earned for many different reasons, including hazardous duty or flying duty. Service personnel can receive parachute duty pay, aviation career incentives, and even submarine duty pay. There are also incentives for diving duty and hardship pay. If you are a military member, be sure to document all the available payments you receive before visiting the lender or bank.
How to Use BAH to Qualify for Loans
Military members can use their Basic Allowance for Housing to qualify for mortgages, but you need to meet specific requirements to be approved. The BAH is helpful because it can lower your debt-to-income ratio, which is a statement of how much you owe on a monthly basis compared to how much you earn.
First of all, you must be no less than 12 months from leaving the service. If you expect to remain in the service for another two years, for example, you can use the BAH to qualify for a loan. However, if you will be leaving the service in 10 months, you will not be able to use the payments to qualify.
If you plan to use these payments, make sure you have documentation demonstrating that you have re-enlisted or have chosen to extend your active duty. Again, this must demonstrate that you will remain in the military for another 12 months or more.
You will also need to verify that you have an offer of a local job following your release from active duty. Most mortgages will last at least 15 years, and a large portion will continue for 30 years. Lenders will want to see that you will have the income to maintain payments, as the vast majority of military careers will not go on for the entire mortgage. You’ll need to essentially show that when you leave the military your new income will be large enough to make up for what you were previously earning.
If you can’t provide the documents proving that you will remain in the military, it is possible to create a document that officially states you intend to remain an active member of the military for 12 months or more.
It may also be possible to get a statement from your commanding officer that states that you are eligible to reenlist or extend your duty. This document should also state that there is no reason why your continuation of service would not be granted.
Anyone in the Reserves or National Guard will find that their allowances are calculated differently. It often best to consult with a lending professional who can help you navigate the complexities of these payments, no matter what branch you are in.
You certainly don’t have to use the total BAH payment towards a home, and it is possible to have money left over from the BAH to use for expenses like utilities and household items. However, you may discover that the BAH will not cover the entire mortgage payment. Changes in your family situation or your service duties can also impact your BAH, so always speak with a knowledgeable professional.
Helping Veterans and Active Personnel Find Affordable Mortgages
At San Diego Purchase Loans, we are proud to help current and former military personnel find the right mortgages for their specific needs. With a staff of experts and a dedication to service, we’ll do what we can to increase your chance of mortgage approval.
Contact us today and find out how we can help you utilize your BAH and other payments for mortgage approval!