With properties at nearly half the value they were just three years ago, now is definitely the best time to buy a home. However, if you already own your home, there is good news despite the recent drop in housing prices. It’s estimated that roughly half of homeowners are overpaying on their property taxes. For many homeowners, this means losing thousands of dollars that could be going towards a mortgage payment or other living expenses.
As an active duty service member, you’re probably aware that you’re eligible for a basic allowance for housing (BAH). But do you know that your BAH can be used to help you get a VA loan? Although it’s not specifically designed for mortgages, it’s incredibly helpful for anyone considering buying or refinancing a home by helping to defray the costs of a mortgage.
Briefly, a BAH is a non-taxable, monthly payment given to eligible service members when government housing isn’t available. The amount you receive depends on your location, pay grade and whether or not you have dependents. Compensation is determined by taking a number of factors into consideration; however, it largely depends on the rental data of the area in current rental market conditions. Additionally, your BAH includes rate protection. This means if your current BAH rate is less than last year’s, you’ll stay at your current rate – provided that your location, rank and dependency status stays the same. Conversely, if BAH rates rise, you’ll receive the higher rate.
So, how does your BAH help you get a mortgage? It acts as verifiable and reliable income that helps to reduce your debt-to-income ratio. Keeping a low debt-to-income ratio is a key factor that’s used in underwriting when determining your qualifications for a mortgage
At the beginning of the year, the Department of Defense released the 2013 BAH rates which showed an average of 3.8% increase. This can help lower the costs of your monthly mortgage payment, if not eliminate them entirely – especially if you have a VA Loan that does not require a down payment and allows you to refinance your home up to 100%.
With education and proper financial planning, buying a new home or refinancing your current one with the benefits of the VA loan and Basic Allowance for Housing programs can be incredibly easy. Before you get started, make sure you speak with a mortgage lender – like Quicken Loans – who has a dedicated team of Home Loan Experts that know the ins and outs of VA loans, and understands how the BAH can help you achieve the dream of homeownership.