When you step into military life you quickly realize that there are many differences from civilian life. Social structures are different, the terminology is different, and how life operates differs greatly from “normal” life outside of the military. Some may see these differences as negative or positive depending on experience and outlook. But, one aspect that is typically seen as a benefit across the board is that military families do not have to pay out of pocket for housing expenses.
Some families live in military housing that is on base or run by private companies contracted by the Department of Defense, but other families choose to live in private housing off base. This may include buying or renting a home. When you choose to live off-base, the military pays a Military Basic Allowance for Housing (BAH) that is officially designated as a housing allowance each year to be spent on rent, mortgage, furnishings, utilities, and other housing expenses. This base housing allowance is paid in monthly payments separate from your annual salary as a tax benefit.
Knowing the factors that affect your BAH pay and how much you qualify for is important to grasp before beginning your home search so that you know how much you can dedicate to housing expenses.
Factors that Determine BAH Pay
There are several factors that determine the rate of pay you receive for your military basic housing allowance. The main factors are the location where you live, your rank or pay grade, and your dependency status which includes a spouse and children. Each year, this number is evaluated and changes are made accordingly.
Location
The base where you are stationed is the number one factor determining how much military housing allowance you are due. Each military installation has a different rate of pay based on the fair market rentals in the surrounding area. This number rises and falls each year based on market changes. These changes go into effect in January of each calendar year. With each PCS, your BAH pay will change based on the new station but you should always be able to afford a comparable home to your previous home because these changes are made based on the market value.
Pay Grade
Your rank and military pay grade also determine the level of BAH pay that you qualify for. As your rank and pay grade increase, so does your military allowance for housing. Similarly, in a situation where you are demoted and your rank decreases, your BAH pay decreases to reflect that level. All members of each pay grade make the exact same figure per year therefore there is no fluctuation or “raises” throughout the year based on performance. Finding an organized table or calculator of current BAH rates online is easy to do. These rates are evaluated and updated in mid-December of each year and changes go into effect on Jan 1.
Dependent Status
Military service members who are classified as “with dependents” qualify for a higher BAH pay than their counterparts “without dependents.” This is because military-provided housing is different for those with and without dependents, such as a spouse and children. When living on base, being of lower pay grade without dependents means you are given housing in barracks or a dormitory. But when you are married or have children living with you, you qualify to live in a house with bedrooms suitable to the number of persons in your family. Therefore, when allocating BAH pay, the DoD ensures that you receive enough BAH pay to cover a comparable housing arrangement while living off-base.
Changes to BAH Pay
As stated above, BAH pay amounts are evaluated and adjusted each year. These annual changes may reflect local market changes, rank and pay grade changes, or dependency status changes. When adjustments are made based on location, the change goes into effect on Jan 1. But these changes only occur if there is an increase. If the market decreases but you already have a home in the area, you are protected with a Grandfather Clause and your rate will not decrease unless you move to another location, get demoted, or if the number of dependents living in your home decreases.
Changes in rank and dependency status take effect immediately upon the change. For instance, if your pay grade decreases, your BAH pay will follow suit. Likewise, if your dependents no longer live with you due to divorce or becoming an adult, then your BAH pay will reflect these changes.
How to Use BAH Pay for Housing
If you’re choosing to buy or rent a house off-base, it’s important to know how much you have to spend. Knowing your budget determines the type of house you are looking for. Though you may choose to find a home that exceeds the fair rental market value of the area, you will be responsible for paying any amount that exceeds your BAH pay. It is important to know this difference before beginning your home search. Though BAH pay can fluctuate, it is easy to determine how much you will receive for a specific calendar year through online calculators or each year’s published table.
It is important to note that though BAH pay is excludable from gross income for income tax purposes according to the internal revenue code, it can be included in gross income for home loan purposes. Doing so does not affect your federal income tax or taxable income.
When you work with a member of the Desert Heroes team, you are working with a real estate agent who is well-versed in military life and procedure. We can help you find out exactly how much BAH pay you qualify for and can help you determine exactly what your housing spending budget should be.
Our team is thankful for your service and is dedicated to helping you settle into your life as a military family in Arizona. Contact us today to discuss your housing situation and questions.