Educational Article

How Much Home Can I Afford?

Curious about how much home you can afford? Here’s some guidance from the experts.

Some people make the mistake of taking on too large of a rent or mortgage payment and end up struggling to pay their bills. So, how can you avoid becoming house “rich” and cash poor?

Tip: Strive to keep your monthly rent or mortgage payment to your Basic Allowance for Housing (BAH) or 25 – 30% of your gross monthly income.

This rule of thumb may be challenging in the face of increasing housing costs but is intended to keep your housing expenses manageable and leave room in your budget for other goals. Even if you can’t stick to this guidance, it’s still a good place to start.

Aggressively stretching your budget to cover a larger rent or mortgage payment will impact your ability to pay for other things like transportation, food, and entertainment. Consider the following examples of mortgage or rent payments relative to gross income.

What does this look like in practice?

Staff Sergeant Smith

SSgt Smith’s monthly gross income is $4,500.

The following chart breaks down how much SSgt Smith should plan to spend on his rent or mortgage payment.

Target	Stretch	Aggressive
Target: $1,125/mo 25% of gross monthly income	Stretch: $1,350/mo 30% of gross monthly income	Aggressive: $1,575/mo 35% of gross monthly income

Lieutenant Cable

LT Cable’s monthly gross income is $6,500.

The following chart breaks down how much LT Cable should plan to spend on her rent or mortgage payment.

Target	Stretch	Aggressive
Target: $1,625/mo 25% of gross monthly income	Stretch: $1,950/mo 30% of gross monthly income	Aggressive: $2,275/mo 35% of gross monthly income

A Breakdown of Basic Allowance for Housing (BAH)

The purpose of BAH, a tax-free allowance, is to offset the cost of housing when you live on the economy – or in non-government-provided housing.

This allowance is based on your pay grade, the location of your permanent duty station, and whether you have dependents. To estimate your BAH, visit The Defense Travel Management Office website.

There are a lot of factors that go into determining BAH rates, but the allotted amount is intended to cover approximately 95% of expected housing costs, so you’ll likely need to cover the difference out of your own pocket. Review your total budget to find dollars to make up for this shortfall.

Here are a few tips to get you started:

Budget early and often.
Create a budget, preferably before you PCS, that accounts for BAH and your household expenses.
Save on utilities.
Try to reduce your electric bill with the use of a smart thermostat, insulated curtains, or energy-efficient light bulbs.
Shop smart for groceries.
Planning your meals for the week and making a shopping list can help make the most of your grocery budget. Even if you can’t get to the commissary, consider downloading your local grocery store’s mobile app for additional savings and coupons.
Factor in your commute.
If your plan is to save money by living far from base, be sure to consider the cost of the commute, including gas, maintenance, and wear and tear on your vehicle.

Tip from Steve Georgoulakis, CFP^®

Let Uncle Sam pay your mortgage. While it might sound like clickbait, BAH dollars present a unique opportunity to pay down a mortgage and build up home equity.