Rent vs. buy near your base (BAH + VA loan guide)

Military service members have several different options when it comes to housing. While new and lower-ranking service members are typically required to live on-base, higher-ranking service members can choose to live on- or off-base and to rent or buy a home.

For military service members, the decision of where to live and whether to rent or buy comes with certain considerations and resources. Service members also receive an allowance separate from their pay to cover housing when government housing has not been provided. Here, we’ll take a closer look at how military housing works, what the Basic Allowance for Housing (BAH) is, and the pros and cons or renting or buying near a base.

How military housing works

Military service members either live on-base or off-base. If housing isn’t provided, the military offers service members a monthly allowance to cover housing costs. Here are the 5 main housing options for service members:

1. On-base, provided housing. Newer, lower-ranking members are often required to live on-base in barracks or dormitory-style housing. Because this type of housing is provided rent-free, you won’t get a separate housing allowance.
2. On-base, government-owned housing. These are homes located on-base that you can use your housing allowance to rent.
3. On-base, private housing. These homes are also located on-base and you can use your housing allowance to rent them. The difference is these homes are managed by private companies, so they’re often newer with modern amenities.
4. Rent off-base. You can use your housing allowance to rent a home off-base for more options and a separation between work and home life. Some leases include a clause that allow you to get out of the lease without penalty if you receive PCS orders.
5. Buy off-base. You can buy a home off-base and use your housing allowance to help cover mortgage payments. Service members can also take advantage of the benefits that come with VA loans, which do not require a down payment.

BAH 101 - What it is, how it’s calculated, and how lenders use it

Basic Allowance for Housing is a monthly allowance paid to eligible military service members to cover housing when government housing isn’t provided. The amount received depends on the service member’s pay grade, location, and whether they have dependents. Higher ranking, experienced service members typically receive a larger allowance, as do those who live in areas with a higher cost of living.

BAH rates are set annually by the Department of Defense based on rental market rates, the average cost of utilities, and the home type and size. If your housing costs exceed your BAH, you’ll need to cover the difference. If your housing costs are less than your BAH allowance, then you get to use the difference toward other expenses.

You can calculate your BAH rate based on rank and location using this tool.

BAH does not get taxed and is not considered part of the service member’s pay. However, lenders will consider BAH as income when determining your eligibility for a mortgage. Not only can you use BAH to qualify for a loan to buy a home, but you can then use it toward your monthly mortgage payment.

VA loan 101 for active duty

VA loans¹ are a type of mortgage backed by the U.S. Department of Veterans Affairs to eligible military service members, veterans, and their surviving spouses. These loans are issued by private lenders and guaranteed back the VA. Some of the perks of using a VA loan to buy a home include:

• No down payment requirement
• No mortgage insurance requirement
• Competitive interest rates
• Higher debt-to-income ratio thresholds
• Can be used more than once

VA loan requirements

To qualify a VA loan to buy a home, you’ll need to meet the following eligibility requirements:

• You’re a military service member, veteran, or surviving spouse
• A Certificate of Eligibility (COE)
• Minimum of 90 days of continuous active duty
• Enough income to cover mortgage payments
• You’ll occupy the home as your primary residence
• You pay a VA funding fee of 1.25% to 3.3% the total loan amount

While the VA does not enforce a minimum credit score, lenders typically require a credit score of at least 620 to get a VA loan. Lenders will also consider your DTI, which typically cannot exceed 41%.

A VA loan can be used to buy the following property types:

• Single family home with up to four units
• A condo in a VA-approved complex
• A manufactured home or lot

Buying near your base with a VA loan — pros and cons

For military service members, buying a house near your base can be a worthwhile investment and smart financial move. If your mortgage payment is comparable to what you’d be paying in rent, buying gives you the opportunity to build equity and wealth. However, it’s important to be aware of the tradeoffs.

Some of the advantages of using a VA loan to buy near your base include:

• Ability to build equity
• No down payment requirement
• No mortgage insurance requirement
• Predictable monthly payment with a fixed-rate mortgage
• Potential tax benefits
• VA loan assumption option

Buying instead of renting also comes with potential risks and downsides for service members, including:

• Higher up-front costs
• Long-term commitment
• PCS orders can require you to relocate
• Costs of selling
• Maintenance and repair costs
• Risk of negative equity with market fluctuation

Service members who do decide to buy should be prepared for what will be done with the house upon PCS orders - or if orders change early. VA loans are assumable, which means that even non-veterans can take over your loan with the same interest rate. This can be a helpful option for service members who bought a home and then need to relocate.

Renting near your base — pros and cons

Some military service members opt to rent a home instead of buying one. Service members are subject to military Permanent Change of Station (PCS) where they must relocate for a long-term assignment of 2 - 4 years. Because service members have to move every few years, it’s more difficult to build equity in one location or break even on the up-front costs of buying.

Some of the advantages of renting near your base instead of buying include:

• Low up-front cost
• Flexibility to relocate without having to sell
• You don’t have to cover maintenance and repairs
• No homeowners insurance or property taxes

However, it’s also important to be aware of the potential downsides of renting instead of buying, such as:

• You don’t build equity
• Limited autonomy over the property
• Rent can keep increasing after the lease term is up
• No tax benefits
• Restrictions on pets

How to decide whether to rent or buy near your base

If you’re a service member trying to decide if you should rent or buy near your base, here are some factors to consider.

• Your timeline: If you know you’ll be in stationed in the same location for 3 or more years, buying might be a smart move. If you’re expecting PCS orders in the next couple years, you may not get a chance to recoup the up-front costs of buying.
• Market conditions: If interest rates are low and inventory is high, it might be a great time to buy. If rates are high and it’s a seller’s market where you’re competing with a lot of other buyers, you might end up overpaying. You’ll also want to check in on the local market where you’re looking to buy.
• Your finances: If you have enough saved up to cover your closing costs without dipping into your emergency fund, you might be ready to buy. If your credit isn’t so great and you don’t have much saved, you might want to hold off.
• Your BAH: Use our Rocket Mortgage BAH calculator to determine if your BAH would cover your monthly mortgage payment.
• Exit strategy: If you have to move sooner than expected, would you need to sell or could you rent out the home? If you need to sell before you’ve recouped your up-front costs, are you willing to lose that money? Is there someone who would be able to assume your loan?

FAQ about BAH

Here are the answers to some more frequently asked questions about buying a home as a military service member.

Does BAH count as income for a VA loan?

Yes. Even though BAH is not taxed as income, lenders will consider it income when determining your eligibility for a VA loan.

Is it better for active-duty military service members to rent or buy a home?

If you’re planning to stay in the home for at least the next 3 years, then buying a home with a VA loan can be a worthwhile investment.

Can you rent out the home you bought with a VA loan?

Yes, you can rent out the home you bought with a VA loan. However, you will need to have lived in it as your primary residence for at least 12 months first.

The bottom line: Know your BAH options

Active-duty military service members can live on- or off-base. You can use your BOA to pay your rent or make your mortgage payment if you choose to buy a home. Renting can make more sense of you want the flexibility to move easily and your PCS horizon is short or unknown. If you plan to stay put for at least 3 years, buying a home and using your BAH to pay the mortgage can be a good investment.

If you’re ready to buy, start the mortgage loan preapproval process by getting in touch with a Rocket Mortgage Home Loan Expert.

Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.

[1] Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.