I am often asked exactly how to calculate ones housing allowance when purchasing a home overseas. Generally along with this question comes the misunderstandings that that they have been told by others. Some have said that your Living Quarters Allowance is based off how much your actual mortgage is. Others have said it is based solely on what your allowance is for your pay grade. Hopefully here in this article I can explain how your allowances are calculated in order to filter out these rumors.
Keep in mind that the base of these calculations is the same for both Active Duty Military and Civilian Employees. The difference between the two is that the Military members OHA is left in the foreign currency and converted for each pay period based on that periods exchange rate and the Civilian’s LQA is converted back to US Dollars at the time of the purchase. What this means is that the military member’s USD payment will fluctuate with the currency exchange while the civilians USD payment will be fixed on their exchange rate at the time of purchase. So a military member will always get paid just the right amount to cover their calculation each month while some months a civilian may make extra money while other months they may be short. Historically this has balanced out to where the civilian does not notice these ups and down through their course of ownership.
Example 1
Active Duty E-7 with dependents.
Purchase Price: 240,000€
Maximum OHA: 1400€ month
Utility allowance: 703€ month
At the time of this writing the maximum allowance for an E-7 in the Kaiserslautern area of Germany is 1400€ per month for housing plus an automatic payment of 703€ per month for utilities. When he buys a home for 240,000€ the military will pay his mortgage via his OHA for 10 years. The easiest way to calculate this is to know that there are 120 months in 10 years. With that being said you can simply divide the purchase price of 240,000€ by 120.
240,000€ / 120 = 2000€
This member would be allowed to take 2000€ per month for the purchase of his home. Since his allowance is 1400€ he will be maxing out his allowance and take 1400€ per month for 10 years. As he progresses in rank his monthly OHA can increase up to the calculate maximum of 2000€ per month.
In addition to this 1400€ per month the member will automatically take the 703€ per month utility allowance.
Example 2
Active Duty O-4 with dependents
Purchase Price: 165,000€
Maximum OHA: 1670€ month
Utility Allowance. 703€ month
165,000€ / 120 = 1375€ per month
An O-4 with dependents buys a home for 165,000€. She has a cap of 1670€ per month plus 703€ for her utilities. By using the same formula as in example 1 (purchase price / 120) you will see that she will take 1375€ per month. This less than her cap of 1670€. If her goal was to maximize her OHA she would need to buy a more expensive home.
Example 3
GS 11 with 1 dependent
Purchase Price: 300,000€
Max LQA: $49,000 per year or $4,083 per month
For this example we will use a civilian that receives LQA. He is a GS-11 with 1 dependent that takes $49,000 per year. This is different than the military because his allowance is offered in USD rather than Euro. The first thing that so done is that his purchase price is converted from USD to Euro based on the date of the purchase. Let’s use a conversion of .732 for this example.
300,000€ / .732 = $409,836
Once we have the dollar figure for this purchase we are able to calculate the monthly allowance given in just the same manner as for military just in USD.
$409,836 / 120 = $3415 per month
This leaves him with $668 per month remaining in his LQA to cover utilities.
Summary:
These calculations have nothing whatsoever to do with the financing amount of your home or the monthly loan payment. You could pay cash for your home and you would still receive this allowance based on these calculations.
There are many other aspects to be discussed regarding the OHA/LQA regulations and what costs can be included. This article is meant simply to show the basis on which these calculations are made.
With any questions or for more details please send an email to info@mitchell-investment.de. We look forward to hearing from you!