Military Housing Allowance

“Military Income” is defined broadly to include various types of compensation received by personnel during Active, Reserve, or National Guard service. This definition encompasses Base Pay, the Basic Allowance for Housing (BAH), the Basic Allowance for Subsistence (BAS), clothing allowances, flight or hazard pay, and proficiency pay. Lenders are instructed to verify these income sources using the borrower’s Leave and Earnings Statement (LES). However, it is important to note that this definition explicitly excludes military education benefits, which cannot be used as effective income for loan qualification.

Yes, a Power of Attorney (POA) may be used for military personnel under specific circumstances. A POA is permitted if the service member is on overseas duty or on an unaccompanied tour and the lender is unable to obtain the absent borrower’s signature on the application by mail or fax. The attorney-in-fact designated in the POA must have specific authority to encumber the property and obligate the borrower. This provision ensures that deployed service members can still proceed with purchasing a home even when they cannot be physically present to sign documents.

Yes, flight pay and hazard pay are considered eligible components of Military Income. Along with base pay, housing allowances, and clothing allowances, these specific types of pay are recognized as income received by military personnel during their period of active, Reserve, or National Guard service. To use this income for qualification, the lender will review the borrower’s Leave and Earnings Statement (LES) to verify the current amount received. As with other forms of military pay, the lender uses the current amount received to calculate the borrower’s effective income.

Generally, the FHA limits borrowers to one FHA-insured mortgage at a time. However, an exception exists for relocations. A borrower may be eligible to obtain another FHA-insured mortgage without selling their existing FHA-financed property if they are relocating or have relocated for an employment-related reason, such as a military transfer. To qualify for this exception, the borrower must establish a new Principal Residence in an area more than 100 miles from their current Principal Residence. This allows military members to buy a new home at their new duty station while retaining their previous home.

Active Duty military personnel are considered owner-occupants even if they cannot physically reside in the property due to their duty station, provided specific conditions are met. If the borrower is stationed more than 100 miles from the subject property, they may still qualify for maximum financing if a Family Member will occupy the property as their Principal Residence. Alternatively, if a Family Member will not occupy the property, the borrower must declare their intent to occupy the subject property upon their discharge from military service to meet the occupancy requirement.

If a borrower’s Expiration Term of Service (ETS) date appearing on their Leave and Earnings Statement (LES) falls within the first 12 months of the mortgage, the lender must take additional steps to verify income continuity. In this scenario, Military Income (including housing allowances) may only be considered effective income if the borrower represents their intent to continue military service. This ensures that the lender has a reasonable expectation that the income source is stable and will continue for at least the first three years of the mortgage term.

Yes, certain military allowances that are not subject to federal income taxes may be “grossed up” when calculating effective income. This includes military allowances such as the Basic Allowance for Housing (BAH) and subsistence allowances. Lenders may add the amount of continuing tax savings attributed to this nontaxable income to the borrower’s gross income. Generally, the percentage of nontaxable income that may be added cannot exceed the greater of 15 percent or the appropriate tax rate for the income amount, based on the borrower’s tax rate for the previous year.

No, military education benefits cannot be used as effective income for the purpose of qualifying for a mortgage. While the Federal Housing Administration (FHA) allows for various types of Military Income—such as base pay, housing allowances (BAH), clothing allowances, flight or hazard pay, and proficiency pay—it explicitly excludes education benefits from the calculation of effective income. Lenders are strictly prohibited from counting these educational funds when determining a borrower’s debt-to-income ratio or overall capacity to repay the mortgage loan.

To verify military income, including housing allowances, lenders are required to obtain a copy of the borrower’s military Leave and Earnings Statement (LES). This document provides a comprehensive breakdown of the borrower’s earnings, including base pay and allowances. In addition to the LES, the lender must verify the borrower’s Expiration Term of Service (ETS) date. This verification ensures that the income is stable and likely to continue. If the ETS date indicates the borrower’s term will expire within the first 12 months of the mortgage, additional documentation regarding their intent to continue service will be required.

Yes, the Basic Allowance for Housing (BAH) is recognized as a component of Military Income and can be used as effective income to qualify for a mortgage. When calculating a borrower’s ability to repay a loan, lenders look at Military Income, which includes base pay along with various allowances such as the BAH, clothing allowances, and the Basic Allowance for Subsistence. To qualify, this income must be verified and documented, typically using a Leave and Earnings Statement (LES). The lender uses the current amount of Military Income received to calculate the effective income for loan qualification purposes.