Off-base: Avoid substandard military housing with your BAH and a VA mortgage

Why put up with bad housing? Combine a VA mortgage and housing allowance

A VA mortgage and housing allowance can be a powerful combination. When used together, they can put you on the fast track to homeownership. And that’s something many regard as an integral part of the American dream.

We all have to live somewhere, and if you’re not happy with the housing on-base, you may be able to do something about it and buy a home of your own.

Substandard housing on bases

Roughly 20 years ago, the U.S. Department of Defense decided to privatize the housing that it owned. The idea was that private landlords would do a better job than the government at providing homes to service members and their families.

And, in some places, it worked out that way. But, in others, private landlords are delivering homes more suited to vermin, mold and other health hazards.

Base squalor

By the end of 2018, one in three military families who lived on a base said they were dissatisfied with their housing. That’s according to that year’s Blue Star Families’ Military Family Lifestyle Survey of 10,000 family members, service members and veterans.

Meanwhile, a November 2018 investigation by Reuters uncovered countless examples of squalor in on-base housing. For example, Sharon Limon, who lives with her Marine husband at Camp Pendleton, CA, told a reporter about her two-year-old son: “He doesn’t say very many words, but ‘mouse poop’ is one of them,” she said. “I would pick him up out of bed in the morning and he’d have mouse poop stuck to his leg.”

Structural defects

Some of the underlying causes for such horrific conditions arose from the structuring of the original privatization deals:

1. The DOD pays landlords directly, meaning tenants can’t withhold rent or otherwise exercise financial leverage
2. State laws that protect civilian tenants aren’t enforceable on federal military bases
3. There are often no lines of communication between bases and landlords. Issues must be escalated up the command chain and so lose their immediacy

All this means many are trapped in substandard or positively dangerous housing. But it often doesn’t have to be this way.

A way out with VA home loans

You can escape your trap by buying your own home. And you may find that a using a VA mortgage and housing allowance together makes that easier than you ever thought possible.

70 percent of service members choose to live off-base, according to Reuters

VA loans are mortgages guaranteed by the U.S. Department of Veterans Affairs, and they might be the most valuable reward you’ll get for your service. Because they let you buy a home with:

1. Zero down payment — not a cent, unless you choose to pay more
2. Ultra-low mortgage rates — VA borrowers pay a significantly lower rate than borrowers with other programs
3. No mortgage insurance — the VA funding fee, which you pay upfront (and can finance into your mortgage) covers your mortgage with no monthly insurance premiums
4. Flexible underwriting — previous credit problems are less likely to bother your VA loan lender than others
5. Low closing costs — the VA limits some closing costs and allows sellers to pay others

Finally, VA home loans are assumable, even by future buyers of your home who are not veterans or in the military. That may help you sell your home faster or for more money down the road.

Related: 10 biggest benefits to VA home loans in 2019

BAH

Combine your VA mortgage and housing allowance for a truly great deal. If you haven’t checked your Basic Allowance for Housing (BAH) rates recently, there’s good news. They went up an average of 2.55 percent on January 1, 2019. Discover yours using the DOD’s calculator.

Humbug

That double whammy isn’t open to everyone. There are circumstances in which service members must use their BAH for on- or off-base military housing when there’s some available. But there’s a good chance you’ll get a choice.

If you do, you have to remember your BAH is roughly tied to the median cost of renting in your area. So it may or may not cover your mortgage payments. That will depend on the home sale and rental markets where you want to live. And, of course, the costs of homeownership are greater than just your mortgage payments.

All this means you’ve some numbers to crunch and some thinking to do. But have you better things to do than explore ways to improve your family’s way of life and financial future?

Warning for frequent movers

It’s important to understand that the financial benefits of owning are greater the longer you stay put.

So, if you buy, sell and move again during the first few years you own a place, you could lose money. The costs of selling, including real estate commissions, is high — and can wipe out any home appreciation gains you realize.

Of course, you may be able to keep your home and cover your mortgage by renting to another military family — perhaps one who doesn’t like rats any more than you do. In some markets, that can be a very smart move.

But, in others, it can create plenty of headaches. So make sure you understand the pros and cons of being a landlord before you go down that route.

Related: Complete guide to becoming a landlord in 2019

Shopping for a VA home loan

Combining a VA mortgage and housing allowance may give you a shot at getting a great home quickly and easily. But it’s up to you to get the best deal on your loan.

In fact, the VA warns borrowers that it does not set interest rates for VA home loans and that rates vary among private lenders. If a lender approaches you saying that it’s the only one authorized to fund your VA loan, that’s just not true.

And it’s not legal for lenders to use “official” looking advertising materials implying special affiliation with the VA or the federal government. Any VA-approved mortgage lender can fund your loan, so get quotes from several competing providers to make sure you’re getting the best rate and terms.

Time to think

None of the above means that using a VA mortgage and housing allowance to buy a home is the best choice for you right now. But, it’s an idea worth exploring.

And, if your family is currently living in squalid or unsanitary or unhealthy conditions, it might be one you should explore urgently.