Military Finance Network

If I told you it was a good idea to spend money on something you may not ever use, you might think I was giving bad advice. While it seems like it might be bad advice, it is actually one of the best pieces of advice I can give you. I’m talking about insurance, which after your mortgage and auto/transportation expenses, is probably your largest monthly expense.

Insurance is one of the few products I will gladly buy, knowing full well I may never use it. Why? Because I know that if I need it, it’s there, and it will hopefully prevent me from going broke.

Which types of insurance do you need?

Health insurance. Health insurance is one of the most essential forms of insurance you can buy. Just one hospital trip can run thousands of dollars, and a major illness can run tens of thousands or higher, depending on the necessary treatments.

To save money on health insurance, consider your needs and find a plan that gives you the maximum coverage at the best price. Consider looking at Individual Health Insurance vs. Group Health Insurance, a Health Savings Account, or Self-Employed Health Insurance

Auto insurance. If you own a car, then you are probably required to have a basic amount of car insurance, whether it be full coverage or liability only. To save money on car insurance, you should only have full coverage if your car is valuable or you still have a loan on it. You can also raise your deductible to save on auto insurance rates

Homeowners or renters’ insurance. Homeowners insurance is required if you have a mortgage on your property, as it protects the bank’s investment in you. You can save money on homeowner’s insurance premiums by increasing your deductible, combining other policies through the same provider, enhancing home security, and shopping for low rates.

Renter’s insurance is an often overlooked, but is a necessary form of insurance. Most people don’t realize they can purchase renter’s insurance for just a few dollars per month (I paid $120 per year for my last policy). Your rates may vary, but that is too inexpensive for the coverage and peace of mind you receive.

Life insurance. If you are single and don’t have anyone relying on your income, then you may not need life insurance. But if you have a family or other financial dependents, then life insurance is essential! There are many methods to determine how much life insurance you need, so I won’t cover that in this article. There are also several types of life insurance, including term life, whole life insurance, and variable life insurance policies.

Disability insurance or long term care insurance. These two forms of insurance are often overlooked, especially by younger individuals. But disability insurance can help you protect your most important asset – yourself. Many people also wonder if they need long term car insurance. Again, it comes down to many factors, but you should strongly consider it as you get older, especially if you have family history of health problems or are at high risk for certain health issues.

Specialized insurance. Consider your overall financial needs, and consider an umbrella policy or other special insurance program that can cover you in certain circumstances. You may also consider liability insurance if you own a business.

Types of insurance you don’t need

Mortgage protection life insurance. Mortgage protection life insurance is similar to a term life insurance plan, but only pays out the balance of your mortgage in the event you die. Why is it a bad idea? Because you receive less coverage as you pay down your mortgage, but your premiums remain the same (essentially paying more each month for a lower payout).  Many people would be better off just buying a larger term life insurance plan.

Pet insurance, travel insurance, and others. Many additional forms of insurance are sold as add-on that are sold to people who haven’t planned their needs and are caught off guard when the insurance is offered. As with all things, do your research so you know exactly what type of insurance you are receiving, how much it costs, and whether or not it is really necessary.

Your credit report is one of the fundamental financial documents that represent your overall financial health. Your credit report is used whenever you apply for a loan, credit card, mortgage, and sometimes even a job or security clearance. Having a clean credit report, and a high credit score can save you thousands of dollars in interest over the life of a loan, and make it easier for you to be approved for a loan request.

What many people don’t know is that your credit report can be used to help you monitor your financial situation and detect identity theft. Because your credit is linked to so many aspects of your financial life, I recommend checking your credit report often – to verify accuracy of your credit report and help monitor for identity theft and other credit fraud.

Check your credit report often

Problems with your credit or fraud can cause huge problems if left unattended. The more quickly you detect an inaccuracy or fraud, the easier it is to get the problem taken care of. Because your credit report and credit score are so important, it is imperative that you ensure they are accurate. Thankfully, you can get a free copy of your credit report from each of the three major credit bureaus once per year from AnnualCreditReport.com. You should note that the free credit report does not come with a free copy of your credit score, but I will show you how to get that later in this article. Before we go further, let’s look at why you should monitor your credit report and examine some common errors found on credit reports.

The need to monitor your credit report

Your credit report is a historical list of each credit account you have ever opened or been listed on. Inaccurate information can cost you thousands of dollars – either from a lower credit score than you should truly have, or by not noticing when someone steals your identity and racks up thousands of dollars in debt in your name. Checking your credit report often will notify you quickly if there are any inaccuracies or other problems that need to be taken care of.

Reasons you should check your credit report often:

• Accurate listings
• Fraud detection / prevention
• To work on improving your credit score.

Monitor for inaccuracies on your credit report

Mistakes happen. Some of them are honest errors, but some of them may be a more serious indication of fraud. Go through each line item thoroughly to verify it is a credit account you opened, and that the information is still accurate. It is not unheard of for information to be transcribed incorrectly and to see someone else’s information on your credit report. For example, if they have the same name or a similar Social Security Number. Look for some of these common errors and contact the credit bureau if you notice any errors or fraud.

Common credit report errors:

• Inaccurate personal info. Name, Social Security Number, address, etc.
• Inaccurate/outdated account info. Recent account closures, credit limit changes, etc.
• Inaccurate listings for delinquencies or missed payments. Provide proof of your payments with bank statements or canceled checks.
• Missing Accounts. Verify each account you have open is listed.
• Duplicate Accounts. Double check that no accounts are listed more than once.
• Phantom Accounts. Phantom accounts belong to someone else or don’t exist at all. These may be more common if someone has a with a similar name or Social Security Number as you.
• Negative line items more than 7 years old. Your credit score should usually only list items that are within the last 7 years.

How to check your credit report for free

You can get a free copy of your credit report from each of the three major credit bureaus one time per year. To get your free credit report, simply go to AnnualCreditReport.com and sign up for your free credit report offer. Be sure to watch out for the “upgrades” that offer to sell you your credit score. We’ll show you how to get that in just a moment.

To maximize your value, get your credit reports 3 times each year (one every 4 months from a different credit bureau each time). For example, get your free credit report from Equifax, wait, get it from Experian, then TransUnion. You can also add your spouse or significant other to the mix, which will help you monitor his/her credit report as well as monitor any joint credit accounts you may have. In that scenario you can get a free credit report as often as every 2 months.

How to get your free FICO Credit score

While your credit report is free from AnnualCreditReport.com, your credit score is not. You have the option of buying it at a discounted price when you get your free credit report, or you can easily get your free FICO credit score by signing up for a free trial with a credit monitoring service, then cancelingit before the free trial period ends. The free trials usually last 7 – 30 days, which is plenty of time to save a copy of your credit report and credit score. It is the easiest way to get a free copy of both your credit report and credit score.

VA loans are among the most potent and flexible lending options on the planet. The Department of Veterans Affairs guarantees about a quarter of a qualified borrower’s mortgage. That guarantee is what spurs VA-approved lenders to dole out loans and competitive terms to military buyers.

VA Loan Uses

Qualified borrowers can use a VA loan to purchase, construct or refinance a home. They can buy and repair a home at the same time. They can use a VA loan just to repair a home. Other acceptable uses include:

• To refinance an existing VA-guaranteed or direct loan
• To buy a single-family residential unit in a VA-approved condominium development
• To buy a farm residence owned and occupied by the veteran

But these powerful home loans do come with some limitations. Veterans and active-duty military cannot use a VA loan to purchase land or investment properties. A home purchased with a VA loan must be the buyer’s primary residence.

Benefits of VA Loans

VA loans were created to spur lending to military homebuyers, a deserving demographic that can at times struggle to build a solid financial profile because of frequent relocation and overseas deployments.

They’re also a small way to give back to those who have sacrificed so much. In that spirit, VA loans come with some significant financial benefits. The biggest one is what the program has become known for — no down payments.

Qualified borrowers can purchase a house worth up to $417,000 (and even higher in some of the country’s costlier communities) without putting down a single dollar. About 80 percent of veterans who have used the program cite this as its No. 1 benefit.

VA loans also do not require private monthly mortgage insurance. Some other key benefits include:

• Less stringent qualification guidelines
• No pre-payment penalties
• Higher allowable debt-to-income ratios than conventional loans
• Sellers can pay up to 6 percent of closing costs and concessions

About 8 in 10 VA loan borrowers could not have qualified for a conventional loan.

To learn more about VA loans, visit www.vamortgagecenter.com. Next time, we’ll take a look at VA loan eligibility and the VA loan limits.

If you have left government or military service in recent years, then there is a good chance you still have a Thrift Savings Plan (TSP) account in your name. Personally, I’m a big fan of consolidating financial accounts to make financial planning and management easier to deal with. But the TSP is in it’s own category of financial accounts due to several factors that separate it from other investment options, namely some of the lowest expense ratios you will ever find. So keeping your assets in the TSP may not be a bad option.

Before we go further, I will list some of the advantages to investing in the TSP and some of the disadvantages of the TSP. Now that you know where I stand on the TSP, we can look at the rest of the equation.

Should you rollover your Thrift Savings Plan Account?

The first thing you need to do is ensure you still have access to you TSP account. If you are still in the military or government service then you can contact your agency’s finance department to gain access to your account. If you have already separated from your respective service and no longer have web access, then your best bet is to contact the Thrift Savings Plan customer service by calling the ThriftLine and pressing 3.

The next thing you will need to do is determine if your assets are eligible for distribution. The TSP has certain criteria, so contact customer service through the ThriftLine if in doubt.

Deciding what to do with your TSP assets

Once you gain access to your account and know how much money you have in it, you need to decide what to do with those funds. I have previously written an article about your options for the TSP when you leave the service: What Should You Do with your TSP When You Leave the Service?.

This article covers the main options, such as leaving your funds within your TSP account, rolling it into an IRA (the process should be the same for 401k plans and TSPs), roll your assets into a 401k plan at your new employer, withdraw your funds (watch out for early withdrawal penalties), and roll your funds into a qualified annuity.

Pros and cons of doing an IRA rollover

The TSP has some of the lowest expense ratios in the investment industry and you will be hard pressed to find mutual funds with expense ratios that low. You almost certainly won’t be able to find them in a 401k plan, as most 401k plans have funds with relatively high expense ratios.

An IRA, on the other hand, gives you better control over your investment options, including the ability to invest in a wide variety of stocks, bonds, funds, and other investments that you can’t use with the Thrift Savings Plan or a 401k plan. You can also open an IRA at many locations, including banks, online discount brokers, mutual fund houses, etc. You

Advantages of rolling your TSP into an IRA:

• Full control of investments
• More investment options
• Ability to control fees
• Portability

Advantages of leaving your funds in the TSP:

There are two main advantages to leaving your funds in the TSP: the low expense ratios, and the possibility of tax free withdrawals if you made contributions with tax free funds.

This last advantage could apply if you contributed to your TSP plan while you were in a tax free combat zone. To see if you have any tax exempt money in your TSP, look at the bottom of you balance sheet: you will see “Tax Exempt Balance – $xxxx.xx.” You may wish to keep your TSP if you have a large amount of tax free contributions because those contributions would have been made without being taxed and that percentage of your withdrawals would also be tax free – which is virtually impossible to achieve in the civilian world!

Additional benefits to leaving your assets in the TSP. You won’t be charged any additional fees to leave your funds in the Thrift Savings Plan (plan expenses still apply), and it won’t affect any of your other investments, or ability to open other retirement accounts. [How Many Retirement Accounts Can You Have?].

Rolling over a TSP Account into an IRA

If you decide to roll your Thrift Savings Plan assets into an IRA, then you have a few options to consider. The first thing you will need to do is Open an IRA if you don’t already have one. Here is a list of what to look for when opening an IRA and some of the best brokerages to open an IRA to help you.

The TSP has many similar features to a 401k plan, so the following articles may help you make your decision:

• Should rollover a 401k into an IRA?
• How to Rollover a 401k Plan into an IRA.
• How to do a 401k Rollover at Vanguard.

Which option is the best?

There is no right or wrong option. If you prefer a hands off approach with low fees, or if you have a large amount of tax free contributions, then you may wish to keep your funds in the Thrift Savings Plan. If, however, you have a hands on investing approach, or simply wish for more investment options, then rolling your TSP assets into an IRA may be a better option for you. Be sure to investigate your options thoroughly and make the best decision based on your investment needs and risk tolerance. Best of luck!

Veterans and active-duty military members have access to one of the most flexible and low-cost lending programs in the country, the VA Loan. It’s not by accident — the VA Loan Guaranty program was created 65 years ago to honor the service and sacrifice of the nation’s military members.

What is a VA Loan?

The VA home loan program was created to spur homeownership among a deserving demographic that has at times struggled to find financial stability —current military members and veterans of the US armed forces. Since the close of World War II, the U.S. Dept. of Veteran Affairs has helped more than 18 million veterans and their families become homeowners.

Service members face deployments across the globe and frequently move from base to base within the United States. That transient lifestyle can take a toll on a service member’s ability to plan for and build toward the future. That’s why VA loans have proved so crucial for the last six decades — and why they’re still so popular today.

VA loans come with a guarantee from the U.S. government. Basically, the VA agrees to repay about a fourth of a borrower’s mortgage if he or she winds up defaulting. That guarantee gives a greater degree of confidence to lenders, who in turn can typically offer qualified borrowers excellent mortgage rates and loan terms.

In fact, VA loans are one of the few ways borrowers can still buy a home without putting down a single dollar. Veterans and active-duty military across the country cite the “no down payment” benefit as the program’s most powerful. VA loans also do not require borrowers to pay Private Mortgage Insurance (PMI), which is required by lenders when homeowners purchase a home with less than a 20% down payment. PMI can cost borrowers several hundred dollars per year, making the VA loan a more attractive option than some conventional mortgage loans.

Interest in VA loans is surging across the country. Amid a tight credit environment and a roiling housing market, active-duty members and veterans are turning to the security of government-backed loans in record numbers.

The VA Loan Guaranty Program guaranteed almost $70 billion in single-family loans for the fiscal year ending September 30, an 80-percent increase from last year.

To learn more about VA loans, visit www.vamortgagecenter.com or the US Department of Veterans Affairs VA loan pages.