Military families across the country are waiting anxiously to see what their Basic Allowance for Housing (BAH) rates will be in 2023. (The new bah rates are usually announced on or around 15 December.) With housing prices going up significantly in many areas, many have their fingers crossed for a big increase for next year. Here are some important things you need to know when you look at the new BAH rates.
It’s The Duty Station Zip Code
This may seem obvious, but it’s a big deal if you live in an area with multiple Military Housing Areas. For example, you may work in Suitland, Maryland, but live in Annapolis or Crofton. All three are in different MHA and have different BAH rates. Sometimes the difference is small, but sometimes it is dramatic. Be sure you’re using the duty station zip code for your BAH search.
This can also come into play if the family is living somewhere different from the service member. Unless an exception applies, BAH is based on the service member’s duty station. Exceptions may include unaccompanied tours, locations without resources for family members, families who are permitted to remain at a location for medical care, etc. If you are not sure if your family’s situation is an exception to the BAH-at-duty-location rule, you should find out.
BAH Rate Protection Means That You Won’t Lose Money
The Department of Defense has rate protection rules that ensure that you will receive the higher of the old rate or the new rate unless you move, are demoted, or have a change in dependency status.
BAH Rates Are Not Based On The Housing You Choose
Within the BAH formula, every rank is assigned a housing size and type, and the rates are calculated for the specified size and type. A lot of people live in housing that is larger than the size and type that is used in the BAH calculations for their rank. Heck, we’ve only once lived in a house that wasn’t bigger than the size tied to my husband’s rank.
One of the beautiful things about BAH is that you can choose to live wherever you want. Any savings or additional costs come back to you. While we may all agree that the housing standards aren’t appropriate for 2022, they are what they are. If you or I choose to in a property that is different, that’s our choice. It’s also our financial responsibility.
BAH Is Calculated for Renting, Not Buying
The BAH formula is based on rental prices, not the cost of a mortgage. There are several good reasons for this. I can’t even begin to rank them in order. One obvious reason is that there are too many variables to have a logical BAH rate based on home ownership.
The cost of a mortgage can vary dramatically based on not only the cost of the house. The monthly payment also includes:
- the amount of your down payment
- the interest rate of the loan
- the cost of your insurance
- the taxes
- possibly other costs like homeowner’s association
Your sales price and/or mortgage value may or may not include some or all of the costs of purchasing the property. And the cost of your mortgage can’t factor in the opportunity cost of your down payment, the potential for appreciation or depreciation, and the costs of selling.
Can you imagine the logistical nightmare of coming up with THOSE BAH rates?
Regardless of how you feel about whether BAH should or should not be based on renting and/or buying, the rates ARE calculated on renting.
BAH Is Not Supposed To Cover All Your Costs
BAH is calculated on 95% of the determined actual costs of rent and utilities for the designated size and type of housing. The original BAH law says 80%, but over the years there have been adjustments. The formula has gone up to 100% and then back down to 95%. There is some talk of adjusting it back to 100%, but we shall see where these conversations go.
While BAH standards and rate calculations are not perfect, it is important to remember the value of BAH. There are very few other jobs where you get any housing allowance, much less a tax-free housing allowance. If you talk to your former-military friends, they’ll probably tell you that they miss BAH.
You are free to use this allowance towards the housing of your choice. You control how much of your actual costs are covered by BAH when you choose where you are going to live. There’s no right answer, simply the right answer for you and your family’s unique situation.