The basic allowance for housing: Helping military members afford a home
Today is Memorial Day in the United States, a federal holiday to commemorate U.S. soldiers who died while in military service. This is a guest post from Chris Birk, a recovering journalist and the director of content and communications for Veterans United Home Loans, the nation's leading dedicated VA-approved lender. Birk writes about mortgages and military home buying for a variety of sites and publications, from the Huffington Post and About.com to Mortgage News Daily and Our Broker.
An ex-Marine friend recently told me about his father, who served our nation for more than two decades before returning to civilian life. Given the lack of on-base housing during most of his career, my friend's father earned a small fortune in BAH — or Basic Allowance for Housing, a monthly stipend to cover shelter costs — but never took a step toward purchasing a home.
He's now spending his golden years in a small apartment financed by his son.
Scores of service members have access to BAH, but a surprising number don't have a solid understanding of just how powerful it can be. Military members constantly on the move often fail to think of themselves as likely candidates for homeownership.
But these tax-free payments make buying a home and building wealth possible for a deserving demographic that can easily feel left out. The key is ensuring that service members and their families understand the unique tool at their disposal.
The Basic Allowance for Housing is available to qualified service members when government quarters aren't provided. BAH payments vary depending on a service member's rank, dependent status and location. For example, a married E-4 with dependents stationed at Fort Bragg, N.C., currently receives $990 per month in BAH. At Fort Bragg, Calif., the BAH rate for that same soldier rises to $1,161, a reflection of the higher cost of living.
Rates can change annually and are designed to ensure military members can keep up with real estate costs in the civilian world. For many service members, the phrase “real estate costs” simply winds up meaning “rent payments.” That certainly makes sense for some, but the reality is that BAH payments can serve as a significant springboard to homeownership and building wealth.
Over the course of a military career — be it four years or 40 years — service members can accrue a significant chunk of change to purchase and even pay off a home. What's more, using BAH to cover housing costs frees up income and other military pay for other needs, from debt repayment to investment.
Here's an example to help explain. In this scenario, let's assume a married service member with a child enlists, leaves boot camp as an E-2 and retires after 25 years as an E-8:
Service members are often stunned to see that bottom line.
That's more than half a million dollars tax free over the course of a career. Even those who aren't considering a life-long hitch still reap more than $90,000 in BAH after just four years in this scenario.
Homeownership rates remain strong in military circles, but many service members still worry that the process is out of reach financially. There's also concern about how long they'll be at any one duty station.
Military life is a transient one, and service members would certainly expect to move multiple times during the course of a career. But the Basic Allowance for Housing can help carve a clearer path to homeownership at each of those stops, especially when coupled with the flexibility of low- and no-down payment mortgage programs.
Service members and their families can learn more about Basic Allowance for Housing, watch an animated video explaining the program, and check out a BAH calculator at the Department of Defense Center for Travel Excellence.
J.D.'s note: Get Rich Slowly rarely covers military-specific topics, though there've been several requests for such stories. Now's a good chance for current and former service members to contribute their knowledge and expertise. Have you made use of BAH? What advice do you have for other service members who might consider doing so? Share your advice and experience in the comments.