Robert Mitchell provided this useful information 4 years, 8 months ago:

Calculating Your LQA or OHA When Purchasing a Home

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!



This article can also be found on our webisite's news feed Mitchell Consulting LQA/OHA Information



4 years, 8 months ago

Awesome explanation. This will make it much easier for people to figure this out. I am going to make your post a sticky so it stays at the top of the forum.

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4 years, 8 months ago

Here's an excel calculator I put together for this. I just followed the scenarios to configure the formulas. Let me know if it's spot on or needs adjusting.

Also, how does dual military work? Do both active duty members get the OHA the same way as it does when we rent?

OHA Rent vs. Buy.xlsx

4 years, 8 months ago

Quote by STL7997:
Here's an excel calculator I put together for this. I just followed the scenarios to configure the formulas. Let me know if it's spot on or needs adjusting.

Also, how does dual military work? Do both active duty members get the OHA the same way as it does when we rent?




Great idea with the spread sheet! Yes the OHA for dual military works the same way buying as it does with renting. Both Members get their OHA with or without dependents based on their family structure plus 1 utility allowance.

4 years, 8 months ago

That's great information.

4 years, 8 months ago

Hey gang, I am a big fan of Robert Mitchell, he helped me buy my house here in Germany and I couldn't have been happier with his assistance every step of the way. Thanks again Robert!

Steven Guillen

4 years, 5 months ago

Quote by Robert Mitchell:
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!



This article can also be found on our webisite's news feed Mitchell Consulting LQA/OHA Information


Very good explainaton, however the cost of interst is also an expense that is not covered in the calculation. How would that be accounted for? Understand you just wanted to explain how the benefit is calculated, however the expense of interest on a mortgage needs to added to help in budgeting...or should one just maximize the purchase and pay the rest out of pocket so to speak?

Also, since the AD question was asked, how would duel GS work that got married overseas and both get LQA?

Thanks for the great topic and discussion!

4 years, 5 months ago

Quote by Bergman:
Very good explainaton, however the cost of interst is also an expense that is not covered in the calculation. How would that be accounted for? Understand you just wanted to explain how the benefit is calculated, however the expense of interest on a mortgage needs to added to help in budgeting...or should one just maximize the purchase and pay the rest out of pocket so to speak?

Also, since the AD question was asked, how would duel GS work that got married overseas and both get LQA?

Thanks for the great topic and discussion!


Hey Bergman,

The situation of interest all depends on what your plans with the home are.

If you plan to live in the house for 10 years or less and then sell or rent the home out, one option would be to set your mortgage so that its total payment (interest and principal) was equal to what your LQA paid you monthly.

This way you would not come out of pocket anything on a monthly basis and you could pay everything within your cap. When the time comes to PCS you could then sell and take all of your principal as tax free 'profit' or rent your home out to again cover your mortgage. You would essentially never be out of pocket on a monthly basis.

If your plan was to remain living in the home beyond the 10 year point you would need to come out of pocket for the interest portion of the loan during the 10 year period in order to have the home paid off when your LQA runs out.

There are many variables and it all depends on what your intended uses are for the home over during your ownership.

A dual Civilian couple that both earns LQA will have the ability also to combine their allowances. You still take the allowance as figured above.... Purchase price / 120 months. This simply allows you to collectively purchase a more expensive home and earn your equity faster due to the higher purchase price and higher monthly payments.

Let me know if you have any more questions about this or any other topic!!

2 years, 7 months ago

Anyone have any success using an appraisal vs purchase price to set your lqa? I sign my closing papers later this month and was wondering if I was able to get an appraisal that's higher than the purchase price if I could use that to set my lqa amount for 10 years?

2 years, 7 months ago

Quote by kyhoods:
Anyone have any success using an appraisal vs purchase price to set your lqa? I sign my closing papers later this month and was wondering if I was able to get an appraisal that's higher than the purchase price if I could use that to set my lqa amount for 10 years?


Unfortunately LQA is based on purchase price only. There are ways to legally increase the purchase price though that you could explore.

2 years, 7 months ago

Ok, thanks. I thought I read somewhere that it could be based on purchase price or appraised price. What are some ways to legally increase the purchase price?

2 years, 7 months ago

My understanding is when purchasing a house the purchase price is converted to dollars on the sale date using the current exchange rate then divided by 120 and this equals your monthly lqa rental portion. I close on the house later this month and am now concerned by the exchange rate. If it gets to say 1 to 1 or even stays what it is now but goes back to say 0.73 in the next 5 years my mortgage payment will become much greater than my lqa payment. I've built a buffer into my mortgage payment but am still a bit concerned.

My question is, if the exchange rate gets terrible is it possible to reconcile your lqa amount to a higher payment? My understanding is it stays the same for your 10 year limit.

Also, would still love to hear some ideas on legally increasing the purchase price.

2 years, 7 months ago

Quote by kyhoods:
My understanding is when purchasing a house the purchase price is converted to dollars on the sale date using the current exchange rate then divided by 120 and this equals your monthly lqa rental portion. I close on the house later this month and am now concerned by the exchange rate. If it gets to say 1 to 1 or even stays what it is now but goes back to say 0.73 in the next 5 years my mortgage payment will become much greater than my lqa payment. I've built a buffer into my mortgage payment but am still a bit concerned.

My question is, if the exchange rate gets terrible is it possible to reconcile your lqa amount to a higher payment? My understanding is it stays the same for your 10 year limit.

Also, would still love to hear some ideas on legally increasing the purchase price.


Nope the exchange rate on the day of purchase is used and it's never reconciled or changed. If the exchange rate goes south you'll have to make up the difference. The opposite is true as well....those who bought years ago are lucky at the moment.

2 years, 7 months ago

That's what I thought just wanted to confirm. Still a great deal even if LQA only covers most of the mortgage payment. And hey, maybe the euro will only get weaker from this point on (fingers crossed)

2 years, 7 months ago

Exactly! It's an investment no matter what.

2 years, 7 months ago

Quote by kyhoods:
That's what I thought just wanted to confirm. Still a great deal even if LQA only covers most of the mortgage payment. And hey, maybe the euro will only get weaker from this point on (fingers crossed)


I am betting on it. I am currently positioned to buy several thousand Euro once it hits parity, and several thousand more Euro if it gets down to 95 cents per Euro. It'll make a nice average price, and I will convert back to U.S. Dollars when it goes back to normal.

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