BAH — Basic Allowance For Housing.
BAH is the biggest single boost to qualifying income for most active-duty service members — and the most powerful tool for stretching purchase price. Two critical points:
- BAH counts as non-taxable income. Underwriters can gross it up by 25% (most lenders) when calculating DTI. So a $2,800/month BAH gets treated as roughly $3,500 of W-2-equivalent qualifying income.
- BAH varies by station, rank, and dependent status. When PCS-ing, the new station's BAH rate is what qualifies you for the new home — we model both.
Practical impact: a married E-6 at Fort Carson with $2,400 BAH effectively qualifies as if they earned an extra $36,000/year. We document the LES (Leave and Earnings Statement) and the orders to make sure underwriting captures the full benefit.
BAS & Other Allowances.
BAS (Basic Allowance for Subsistence) and other allowances — clothing, cost-of-living, family separation — also qualify as non-taxable income. Same 25% gross-up treatment. Combined, BAH + BAS + special allowances can add $40,000-$60,000 of qualifying income for the typical active-duty family.
Special Pay & Combat Pay.
Combat pay, hostile fire / imminent danger pay, hazardous duty pay, hardship duty pay, sea pay, flight pay — all qualify as income if there's history of continuance. Two-year averages typically apply. Service members rotating through combat deployments can use combat pay if the deployment pattern is documented in the LES history. We work this carefully on every file where it applies.
Reserve & Guard Income.
Reservists and Guard members face a different underwriting challenge: their military income is one paycheck on top of their civilian job. We structure these files with both income streams documented — civilian W-2 plus drill weekend pay plus AT (annual training) pay. Activation income (when called up to active duty for extended periods) is treated separately and requires history-of-continuance documentation.
Military Retirement Pay.
Retired service members have multiple income streams: military retirement pay, CRSC (Combat-Related Special Compensation), CRDP (Concurrent Retirement and Disability Pay), and VA disability compensation. Each has different tax treatment and different gross-up rules. We map your complete retiree income package — including the SBP (Survivor Benefit Plan) deduction — and use every dollar that qualifies.
VA Disability Compensation.
VA disability pay is non-taxable and grosses up at 25% for qualifying. More importantly: any VA disability rating waives the VA funding fee entirely. Not reduced — waived. On a $500,000 VA loan, the funding fee waiver is worth $10,750. Many loan officers never check for this; we do, on every file.