Home Ownership Most Popular Articles

Do the Math, Save Your Cash: Use BAH as It's Intended

Homes

I bet everyone in the military knows that these three letters stand for "basic allowance for housing." It's meant to cover the cost of your mortgage or your rent, right?

Did you notice that it's BAH, not BAM or BAR? Even with the 2015 cuts, did you know that it's designed to cover almost the entire cost of housing (99 percent to be exact) -- which includes rent or mortgage payment plus utilities?

If you knew that, are you practicing it?

The Defense Department's Basic Allowance for Housing breakdown outlines what your BAH should cover. So if you're looking for properties priced right around your BAH total, you may be making a costly mistake.

Here's how it can all go wrong. Let's say your BAH is $1,000 a month, and you use that as your guide. You find an apartment for about $1,000. Now, you've used up your entire housing allowance on rent, and you haven't even thought about utilities and renters insurance (that's no longer part of the BAH).

If you neglected to figure those in, you could be looking at a few hundred dollars coming out of your pocket. Before you know it, living the financial golden rule -- spend less than you earn while saving consistently -- just got a lot harder.

If you're buying a home and use the entire BAH to cover your mortgage payment, the odds against you are even higher. Don't forget, now you'll need to add property taxes and homeowners insurance. Along with utilities, homeowners also must pay for maintenance and upkeep, potential homeowner's association dues and any costs to make the house suit your own style (repainting, window coverings, landscaping, etc.).

Blowing your entire housing allowance on the mortgage payment could lead to a budgeting disaster. If you're overspending on housing, which is most folks' biggest monthly outlay, it's a lot harder to live within your means. I'm all for clipping coupons, cutting out expensive coffee and looking for bargains, but if 50 percent or more of your income is tied up in putting a roof over your head, you probably won't have a lot of wiggle room for those cuts to make a difference.

So, the next time you're in the market for housing, check the BAH guidelines for your area and use the breakdowns as your guide. If you're getting $1,000 of BAH and rent is only supposed to be about 75 percent of your total allowance, shop for housing in the $750 range, not $1,000 or higher.

And even though the DoD cut renters insurance from its equation, make sure you haven't done the same -- find the money to cover it yourself.

In the long run, these choices will guide you to a better housing decision and possibly more money in the bank. And who wouldn't want that?

Related Topics

Basic Allowance for Housing Personal Finances Featured

Military News App by Military.com

Download the new Military.com News App for Android on Google Play or for Apple devices on iTunes!

Contributor

USAA, a diversified financial services organization, is the leading provider of competitively priced financial planning, insurance, investments, and banking products to members of the U.S. military and their eligible families. Rated among the highest among financial services companies for customer advocacy in a Forrester Research survey, USAA provides convenient and accessible financial products to its more than 9 million members. For more information about USAA, or to learn more about membership, visit usaa.com

Featured VA Loan Articles

  • VA Loan Closing Costs: An Added Benefit
    Besides the advantage of requiring no down payment for qualified VA borrowers, there's also a distinct advantage for the borrow...
  • White suburban home.
    IRRRL Facts for Veterans
    Military.com
    IRRRL stands for Interest Rate Reduction Refinancing Loan,also known as a "Streamline" or a "VA to VA" loan.
  • US Map Showing High Cost Counties
    VA Loan Limits for High-Cost Counties 2017
    Military.com
    The VA loan limit for 2017 is $424,100. But it could actually be substantially more if you buy a home in a high-cost county. Se...
  • Get the FAQs on VA Home Loans
    We've answered 16 of the most frequently asked VA Loan Benefit questions. View them now to get a quick understanding of your be...
  • Top 3 VA Home Loan Tips
    There are numerous advantages to having a VA mortgage. A VA mortgage loan can be guaranteed with no money down, in some cases u...
© 2016 Military Advantage