Military Finance Network

This is the third in a series of posts about VA loans. Military homebuyers across the country continue to flock to VA loans. These flexible, low-cost loans have helped almost 20 million veterans become homeowners since World War II.

The government guarantees about a quarter of a borrower’s mortgage, giving approved lenders a greater degree of security. In turn, that security often leads to excellent loan terms for qualified veterans.

On the whole, VA loans are typically easier to qualify for than conventional loans. They also come with some significant financial benefits. Despite that, only a fraction of the nation’s 24 million veterans have taken advantage of their VA loan benefits.

What’s worse is that a whopping 20 percent of veterans don’t even know the program exists, according to a 2004 study by the Department of Veterans Affairs. The reality is that millions of Americans already qualify for these high-impact loans.

Qualifying for a VA loan

The VA has some initial criteria that prospective borrowers must meet in order to continue with the process. At this time, those considering a VA loan must be:

• Military members who’ve served 181 days on active duty or three months during war time may be eligible.
• People who have spent at least a half-dozen years in the National Guard or Reserves.
• Spouses of those killed in the line of duty.

Those who fall into one of those categories must then fill out a Certificate of Eligibility, or COE. This is an official VA document that basically certifies your ability to participate in the program. Applicants can obtain these through the VA directly or through a VA broker.

VA officials look over the Certificate of Eligibility and ultimately determine whether a prospective borrower can participate.

The VA Loan Guaranty Program doesn’t have explicit income or credit standards to qualify. But the VA does not issue loans — it guarantees them. VA-approved lenders will require a credit score of at least 620.

VA Loan Limits

The VA uses a loan limit system that limits how much a participant can borrow with a VA guarantee. Throughout most of the country, qualified borrowers can get up to $417,000 without putting down a single dollar.

That limit is higher in some of the nation’s more expensive housing markets.

Except in those high-cost areas, VA borrowers looking for a house that costs more than $417,000 must cover the difference out of pocket.

For more information about VA Loans eligibility and financing, visit www.vamortgagecenter.com.

Credit card debt can be a budget killer, especially with many credit card companies raising interest rates.It’s not uncommon for credit cards to come with interest rates around 15% or higher. It can take 10 years to pay off your credit card debt if you only pay the minimum on each card. Even if you pay extra on your cards it can take years.

The best way to get rid of credit card debt is a combination of lowering the amount of interest you pay and paying extra on your credit cards. I recently had a reader contact me about using a Home Equity Line of Credit (HELOC) to consolidate his credit card debt so he can pay it off more quickly. Below is his question, some pros and cons to using s HELOC to consolidate credit card debt, and some alternative options.

Should I use a HELOC to consolidate credit card debt?

I was on your website and was reading your information about HELOCs and other vehicles that can help to secure / pay off unsecured credit card debt. I am fortunate in the fact that my house is paid off in full and last year appraised at about 450k. That said, I have about 34k in credit card debt that is eating me alive. Is there a way for me to borrow against the full equity I have in my house to pay all the credit cards off? I want to make a wise choice and not a foolish one. Please let me know what my options are.

Thanks, Chris

Chris, thank you for reading my blog and contacting me.It’s awesome that you eliminated your mortgage, and hopefully you can eliminate your credit card debt. The following is giving general information, not recommendations. Always do your research before making important financial decisions.

Pros and Cons of using a HELOC to consolidate Debt

HELOCs are a flexible line of credit. They are always open, which means you have access to the equity in your home at any given time. Their flexibility makes them a great option for debt consolidation, home improvements, or an emergency source of funds. The interest rates are also usually affordable, often coming around 5% or so.

While there are many benefits and uses for HELOCs, there are also associated cons to using a HELOC. The biggest downfall is that you are tapping home equity; if you default on the loan, the bank can take your home. Because you are laying your house on the line, you need to make sure you have the cash flow to cover the loan.

Best debt consolidation options

The most important things to look for when doing your own debt consolidation plan is the interest rate, whether or not the debt is secured, and flexibility. Your credit cards are currently unsecured loans, meaning the banks can’t repossess anything if you default on your loan. A mortgage or HELOC would be a secured loan, as would a car loan, meaning the lender could repossess the item if you default.

o% balance transfer credit cards. 0% balance transfers allow you to transfer your credit card debt to a 0% interest credit card. There is usually a 3-5% fee to do transfer your credit card debt, but you lock in 0% interest rates for up to 12 months. This is an incredible deal if you can pay off your credit card debt in that amount of time, and will probably save you the most amount of money in the long run. You can save a lot of money with 0% balance transfers.

HELOC. The next option to save the most amount of money is a HELOC, which usually has an interest rate around 5% or so. The downfall is that your debt is secured with your home, so if you don’t want to default!

Personal line of credit or P2P loan. You may be able to get a personal line of credit through your bank, or you may be able to get a peer to peer loan through a company such as Lending Club or Prosper, which both allow regular folks to loan people money for things like paying down credit cards at a lower interest rate. The interest rates are generally a little higher than HELOCs, but are lower than most credit cards.

Change your spending habits!

All of these ideas can help you save money, but the most important thing to do is to change your spending habits in regard to credit cards. You will not be able to pay your credit cards off quickly if you continue adding debt to them. Make the commitment to no longer using your credit cards, then consolidate your credit card debt to a lower interest rate. Then begin aggressively repaying your loans to get them eliminated as quickly as possible. Once you have completely eliminated your debt you will enjoy a much higher monthly cash flow and you can begin watching the power of compound interest work for you, not against you!

Best of luck, and I hope you are able to pay of your credit card debt soon!

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.