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Rolling Your TSP into an IRA – Roth or Traditional

by MilitaryBenefits

When service members separate from the military, they can leave retirement funds in their Thrift Savings Plan, or TSP. But, this isn’t always the best option. Alternatively, veterans can move retirement funds into an Individual Retirement Account, or IRA, which provides some key advantages. As such, we’ll use this article to explain rolling your TSP into an IRA – Roth or traditional.

Rolling Your TSP into an IRA - Roth or TraditionalSpecifically, we’ll discuss the following:

  • TSP Overview
  • IRA Overview
  • Advantages to Rolling TSP Funds into an IRA
  • TSP to Traditional IRA Rollover
  • TSP into a Roth IRA Conversion
  • Tax Exempt TSP Contributions
  • Final Thoughts

TSP Overview

The TSP, or Thrift Savings Program, provides federal employees an employer-sponsored retirement savings account. As a result, the TSP is loosely equivalent to a 401k plan offered by many civilian employers. The TSP acts as a tax-advantaged, defined-contribution retirement plan. Simply put, this means that the TSP: A) provides tax benefits for retirement savings; and B) has a guaranteed government contribution on top of member contributions (as opposed to a pension, which is a guaranteed benefit).

With respect to taxes, TSPs offer two options: traditional or Roth. With a traditional TSP, individuals get a tax benefit now. Every dollar you contribute to a traditional TSP reduces your current taxable income. Conversely, Roth TSPs provide a tax benefit later. You don’t reduce your current taxable income with contributions. But, every dollar you withdraw after retirement age (59 ½) comes out tax-free.

When service members separate from the military, they do not need to close their TSP accounts. Instead, the federal government allows you to keep your account open for as long as you’d like. For many service members, this option makes sense for two primary reasons:

  • Low expense ratios: The available investment fund options in the TSP have extremely low expense ratios (amount you pay to hold the funds).
  • No account charge: You also do not need to pay the government any sort of administrative charge to keep your account open.

IRA Overview

Unlike TSP accounts and 401k plans, IRAs are not employer-sponsored plans. Rather, as the name suggests, any single person can open an IRA to save for retirement (so long as they’re earning income). This means that IRAs are entirely funded with your own contributions, as opposed to defined-contribution plans, which have a guaranteed employer contribution.

Aside from this contribution difference, IRAs offer largely similar retirement advantages to TSPs. That is, you can use these accounts as tax-advantaged retirement savings vehicles. If you open a traditional IRA, you receive the same present tax benefit, lowering your taxable income for every dollar you contribute up to an annual maximum (though this benefit phases out at certain income levels). Alternatively, you can open a Roth IRA and receive a deferred tax benefit, withdrawing funds tax-free in retirement (also age 59 ½).


Advantages to Rolling TSP Funds into an IRA

As outlined above, a couple benefits exist for keeping retirement savings in a TSP once you separate from the military. However, there are also some major advantages to rolling those funds into an IRA. If any of the below advantages resonate with your unique situation, moving your TSP funds into an IRA may make sense.

Advantage 1: Investment Options

While the TSP offers extremely low expense ratios, it also has very limited investment options. Within your TSP account, you can only choose from five individual funds or several life-cycle funds (which automatically rebalance your portfolio as you approach retirement age). This means that investors looking to purchase individual stocks, exchange-traded funds, or other common investment options cannot do so in a TSP.

Alternatively, IRAs typically offer a wide variety of investment options, limited only by the account custodian. For more sophisticated investors who prefer building a personalized retirement portfolio, IRAs simply offer far more flexibility. Additionally, some investors eventually choose to use retirement funds to invest in alternative assets (e.g. real estate, precious metals, etc.). While you cannot do this with a TSP or normal IRA, you can with a self-directed IRA.

Advantage 2: Simplicity

As people approach retirement age, many try to simplify their financial situation. This may mean limiting the number of open retirement accounts you have. If you served in the military, worked in a civilian job, and started an IRA, you could potentially have three retirement accounts (TSP, 401k, and IRA) – and that doesn’t even include your spouse’s accounts.

Rather than monitor these separate accounts, some retirees prefer the simplicity of a single account. And, rolling your TSP and 401k funds into an IRA can help achieve this simplicity.

Advantage 3: Continued Contributions

Once you separate from the military, you can no longer make direct retirement contributions to your TSP account. You can transfer balances from other retirement accounts back into the TSP, but this creates additional administrative headaches. And, as stated above, moving funds back into a TSP inherently limits your investment options.

Alternatively, you can consolidate TSP funds into an IRA. This lets you: A) structure your retirement portfolio with the investment options of your choice; and, B) continue to make the IRS-allowed annual contributions into that IRA.

Advantage 4: Potential Tax Benefits (Roth-specific)

Converting your traditional TSP into a Roth IRA also offers a potentially sound tax strategy, depending on your unique situation. As discussed, traditional TSP contributions are pre-tax, whereas Roth contributions are post-tax. So, if you move funds from a traditional TSP into a Roth IRA, you’ll need to pay taxes on the entire amount.

If you plan on entering a lower tax bracket when you leave the service, this strategy could save you a ton of money. For example, say you have $100,000 in your traditional TSP when you separate. If you move those funds into a Roth IRA, you’ll need to pay income taxes on the entire $100,000. But, you’ll gain the advantage of tax-free withdrawals on that amount plus all earnings when you reach retirement age.

Let’s say your first year as a civilian you and your spouse decide to travel for a year, or you decide to go back to school. In either of those situations, you’ll have very little income, so you’ll fall into one of the lower IRS tax brackets. This gives you the opportunity to pay a 10% or 12% tax rate (as opposed to 22% to 37% for higher earners) on this $100,000. Then, you have the advantage of tax-free withdrawals in retirement. Alternatively, when you’re forced to withdraw traditional TSP funds in retirement via required minimum distributions, you could end up in a far higher tax bracket.

Of note, if you convert your traditional TSP balance into a Roth IRA when you separate, the TSP administrators will not withhold taxes for you. This means that you must plan for paying taxes on the entire conversion amount when you file your annual taxes.

Making the Decision

If the above advantages outweigh the extremely low expenses of the TSP, you may want to consider transferring your balance into an IRA. Of note, two broad options exist: transferring into a traditional IRA (known as a rollover) or into a Roth IRA (known as a conversion). We’ll explain both in the next two sections.


TSP to Traditional IRA Rollover

The TSP administrators actually make closing your account a fairly easy process. When you log into your account on TSP.gov, select the “Withdrawals and Changes to Installment Payments” option. This then opens an online withdrawal wizard that walks you through the entire withdrawal process. When you select the “Full Withdrawal” option, the wizard will automatically use your answers to generate the relevant sections of TSP-70, Request for Full Withdrawal.

To complete this withdrawal wizard, you’ll need your traditional IRA account details (number and account custodian). You can use an existing IRA, that is, one you’ve had open and contributed to for multiple years. Alternatively, you can create a new account and fund it with the rollover proceeds. Opening an IRA is extremely easy, as many institutions even let you open one online.

Once you’ve completed the withdrawal wizard online, you need to print and sign the form. If you have a spouse as a beneficiary, you’ll also need to notarize his or her signature. Once completed, you then have a couple options for submitting the form:

  • Option 1: Submit the signed TSP-70 to your new IRA account custodian, and they can handle the process on your behalf with the TSP. Eventually, the TSP will mail a check directly to your new custodian, who will alert you that the funds have been received.
  • Option 2: Submit the signed TSP-70 to the TSP directly. You will then receive the withdrawal check, which you must forward to your new IRA custodian for deposit in order to avoid IRS tax and early withdrawal penalties.

We recommend Option 1. It’s always better to have a professional IRA custodian handle these rollovers, as it limits the potential for mistakes that could cause issues with the IRS.

TSP into a Roth IRA Conversion

Completing a traditional TSP to Roth IRA conversion largely parallels the above rollover steps. You use the same TSP withdrawal wizard, and you also have the options of having your new custodian handle the process or doing it yourself.

Where the Roth IRA conversion differs is with taxes. As discussed above, if you move funds from a traditional TSP into a Roth IRA, you need to pay income taxes on the full amount. And, the TSP will not withhold any funds for tax purposes, meaning you’ll need to plan for the entire tax bill. Instead, in January of the year following the withdrawal, the TSP will mail you a 1099-R. This form – also sent to the IRS – provides you the necessary information to file with your next annual tax bill. Continuing the above example, if you converted your entire $100,000 traditional TSP balance into a Roth IRA, your 1099-R would reflect an additional $100,000 in taxable income.

However, an option exists to avoid such a large tax bill in a single year. Instead of converting 100% of your traditional TSP balance into a Roth IRA, you can instead structure it over several years. To do this, you complete a TSP to traditional IRA rollover instead, as this will not incur any additional taxes. Then, depending on your broader financial situation, you can do annual conversions from your traditional IRA to Roth IRA. For instance, you could choose to convert $25,000 per year for four years, minimizing your annual tax bill in the process.

NOTE: Whether you complete a traditional to traditional rollover or traditional to Roth conversion, you avoid annual contribution limits for IRAs. Conversely, with direct contributions to an IRA, you cannot exceed these annual limits.

Tax-Exempt TSP Contributions

If you made TSP contributions while deployed in a combat zone, you’ll likely have a tax-exempt balance in your TSP account. These are funds on which you never have to pay taxes. As such, you need to ensure that these funds don’t mistakenly get rolled into a traditional IRA. When you complete the TSP withdrawal wizard, you’ll see a box stating: Check this box if tax-exempt balances are accepted into the account identified above.

  • If completing a traditional TSP to traditional IRA rollover, do not check this box.
  • If completing a traditional TSP to Roth IRA conversion, do check this box.

Technically, you can pocket those tax-exempt funds as soon as you separate and complete your full TSP withdrawal. But, if you instead contribute them to your Roth IRA, you gain a double-tax benefit: 1) you didn’t pay taxes on the initial amount; and 2) you don’t need to pay taxes on the earnings when you withdraw them.

Final Thoughts

When you separate from the military, you can certainly leave your TSP balance in that account. If you prefer the low expense ratios and streamlined investment options of the TSP, this approach makes sense. Alternatively, rolling your TSP balance into a traditional or Roth IRA provides far more flexibility with investment options. And, depending on how you structure the rollover, you can gain some tremendous long-term tax benefits when you move funds from the TSP into a Roth IRA.


About The AuthorMaurice “Chipp” Naylon spent nine years as an infantry officer in the Marine Corps. He is currently a licensed CPA specializing in real estate development and accounting.


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When to Refinance a Car Loan

by MilitaryBenefits

Many consumers think about when to refinance a car loan, but those who have never refinanced anything before come to the process at a serious disadvantage–at first.

Once you learn a couple of things to do before fully committing on paper to refinancing your car loan, you’ll never worry again about whether you’re making the right decision.

Auto Loan BasicsWhen to Refinance a Car Loan

Some might feel their intelligence being insulted with a car loan 101 section, but there are things some don’t know about this process that can help borrowers feel less intimidated going to the dealership or the lender. No matter whether you’re buying OR refinancing, you should know the following:

An Auto Loan Is A Secured Loan

The loan you apply for when buying or refinancing a vehicle will be secured by the vehicle. Like purchasing a home, the vehicle is collateral. This may seem like an unimportant-to-the-borrower detail, but it’s actually a VERY important detail. Why?

Because all cars immediately lose value when they are purchased and driven off the dealer’s lot. From the start of your ownership of the vehicle, you are working against the clock in terms of how long the car, truck, van, etc. is resalable and for how much. Home loans work in the opposite direction–the house gains value over time.

Cars usually do not. If down the line you need to sell the vehicle in order to pay off the auto loan, you might find yourself paying something out of pocket to offset the reduced current value of the car or truck.

Auto Loans Feature Fees

All loans will feature fees and closing costs, and your auto loan is no exception. Whether you buy or refinance, there may be a lender’s fee or origination fee associated with your purchase. There may also be other fees including delivery charges, etc. Some fees are non-negotiable, others may be negotiated and SHOULD be negotiated. This is true of purchase loans AND refinance loans.

Auto Loans Are More Expensive At The Dealership

As a general rule of thumb, you should shop aggressively for an auto loan and that is also true of the refinancing. Some don’t shop around and find out later they were badly taken for a higher rate or bigger closing costs, etc.

If you do choose to refinance an auto loan, your best bet is to call some other lenders and tell them what your current rates and conditions are and let them try to give you a better deal. When you are done doing that, call your current lender and tell them what you got offered and try to get them to match or better the deal.

Reasons To Refinance

For most borrowers interested in refinancing an auto loan, the following reasons are the best:

  • Interest rates are falling or have fallen lower than your current loan
  • You can’t keep up with the current level of payments
  • You got your first loan from a lender that gave you an inflated interest rate

Some borrowers who apply for financing at the dealership discover they have been given an inflated rate. Some consumer watchdog sources report this often happens when the applicant failed to check their own credit reports prior to applying for the loan to see what FICO scores are listed. Remember that your credit scores will definitely affect the interest rate you are offered at a lender or at the dealership.

When To Refinance A Car Loan

Here’s the rub when it comes to refinancing an auto loan – most times it may not be worth your time to bother doing. Why? To answer this, let’s review why people refinance any type of loan:

  • To get a lower monthly payment
  • To get a lower interest rate
  • To get out of an adjustable rate loan (where applicable)
  • To cash out on equity built up in the property securing the loan (where applicable)

For car loans, there is no such thing as equity, but there ARE cash-out refinance loan options for auto loans. What this means for the borrower is that you’re taking out a larger loan–possibly larger than the vehicle itself is worth with the cash out tacked onto the transaction.

Being upside down on your vehicle is a way of life the day you drive the car off the lot, but adding more debt to this type of loan isn’t a great idea if your goal is to get free of the monthly payment as soon as possible.

Refinancing To Make Your Car Affordable Again

The other reasons–get a lower payment, get a lower rate, or get out of an adjustable rate loan (also known as a variable rate loan) all make sense IF your goal is to make room in a monthly budget. Be advised that you do so at the expense of having to pay on the car longer.

If your goal is to have more freedom in your monthly expenses, refinancing might be worth it. But if you don’t have a plan to somehow cut down on the length of time you are paying on the car loan (making extra payments, etc.) you may wish to consider that as a factor in your decision making.

Refinancing And Overall Loan Cost

If your goal is to save money for the entire loan transaction, refinancing isn’t a great idea because of the closing costs involved. Add to that the renewed loan term under the refinance will extend your payments well past the original payoff date for your original loan.

For some borrowers, paying the extra money is NOT an option. They want the cheapest overall loan possible and in such cases the refinance option is not advised.

Before You Commit To Refinancing A Car Loan

There are three things you should do to be completely sure you want to refinance your car loan. The first is to review how many payments remain on your original loan and how much your total loan cost is from start to finish under the original agreement.

Next, you should get some quotes on a refinance loan including all closing costs and other expenses. Explain that you want to get the total cost of the refinance from closing costs to payoff day. Compare those expenses with your current loan and ask yourself if paying the new closing costs is worth the money and whether refinancing in this context helps your bottom line.

And before you commit to refinancing a car loan, remember that some loan agreements may contain a penalty for early payoff of the loan or special requirements for making a payoff payment. You should know what these are, where applicable, and how they affect your plans to refinance.

Refinancing is like any other loan transaction–you want to prepare your credit in advance by making sure you have a record of on-time payments on all financial obligations in the last 12 months for best results. You should also make sure you know the contents of your credit report. Don’t apply for a new line of credit with outdated, erroneous, or otherwise inaccurate data in your credit report.

Some borrowers will consider refinancing their current vehicle as an alternative to getting a new one. For others, this is not an option and trading in a vehicle instead is the preferred option. If you choose this route, be sure to familiarize yourself with the Federal Trade Commission’s warnings about trade-ins on certain vehicles and how some dealers take advantage of consumers in this area.


About The AuthorJoe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News


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Payday Loan Advice

by MilitaryBenefits

What is a payday loan? Some 2.5 million American consumers apply for them according to some sources, and the Federal Trade Commission defines these so-called alternative lending products as “…short-term, high interest loans that are generally due on the consumer’s next payday after the loan is taken out.”

Payday Loan AdviceIf that sounds a bit like loansharking to you, you won’t be surprised to learn that the interest rates on payday loans can be incredibly high. The FTC warns that annual percentage rates on certain payday loans can run as high as 400% according to some sources.

Furthermore, some payday lenders use deceptive marketing and “other illegal conduct” according to the FTC to take advantage of financially disadvantaged consumers–including veterans, active duty military, and their family members.

Are Military Communities Targeted By Payday Loans?

Judge for yourself, and remember that not all predatory lending products are identified as payday loans. Some may call themselves a “tax refund loan” which can be predatory depending on the specific terms and conditions of your loan. A non-bank check-cashing service may charge you a higher fee to simply claim your money than if you had just used your bank, etc.

In 2018, the publication American Banker cited a study by Javelin Strategy & Research that included the following statistics:

  • 44% of active duty military members received a payday loan the previous year
  • 68% obtained a tax refund loan
  • 53% used a “non-bank check-cashing service”
  • 57% used a pawn shop

Compare that to the Javelin finding that only 10% total (of all American consumers) got one of these “alternative financial products” the year prior to the report. Draw your own conclusions here about whether military communities are targeted by payday lenders or not.

How Payday Loans Work

One of the “big three” credit reporting agencies, Experian defines how payday lending works. The first thing Experian points out is that payday loans are not consistent from state to state due to variations in state law.

That means you might (and the emphasis here is on might) actually have a favorable experience with a not-so-horrible payday loan in one state only to get badly burned by the terms and conditions allowed in a different state.

What does Experian say about payday lending? You apply for credit with a payday lender, and once approved for the loan you’ll be paid electronically or by cash/check. “You’ll then need to pay back the loan in full plus the finance charge by its due date, which is typically within 14 days or by your next paycheck”. And Experian warns that this comes with a finance charge based on the loan amount and there is, as mentioned above, an extremely high Annual Percentage Rate. These loans can range from $300 to over $1000.

In many cases the payment may be a single payoff amount, or you may be able to make installment payments. But over the course of a year the costs of those installment payments can ride up to nearly half the original value of the loan.

If you applied for a $1000 loan and took a year to pay it back you could wind up paying $400 for the privilege.

It is extremely important to read ALL the fine print when applying for a payday loan, tax refund anticipation loan, etc.

Why? You may find that there are stiff penalties for making mistakes with your loan. You may find that payday loans thrive because of “gotcha” rules like a penalty for early payoff of the loan, or excessive fees for each day of late or missed payments. If you fail to read all the terms and conditions, you will likely get burned by something you didn’t know about.

What You Need To Know About Payday Loans

Why are payday loans so easy to get? Because, as Experian.com reports, your payday lender may require you to fill out an application form but may not run your credit. In those cases, your credit score is not hurt by applying for the loan.

But that is NOT a good thing, because your credit score IS affected by delinquency on a payday loan. You WILL be reported to the major credit agencies for not paying off the loan, for being delinquent, being late, or violating the terms and conditions of the loan.

Add to that the potential of a “rollover loan” where the payday lender automatically extends a loan into a new term if the expiration date comes and goes and the loan isn’t paid in full and you have the potential for a situation where you are in perpetual debt with that lender.

The going advice (see below) is for military communities to avoid payday lending like the plague. For those brave enough to apply for such a loan even after all the warnings, you should know how military communities are protected under the law where these financial products are concerned.

Payday Loans And Your Rights Under The Military Lending Act (MLA)

The Military Lending Act is a federal consumer protection loan for active duty servicemembers, those in the Guard and Reserve who are on active duty, plus spouses and “certain dependents”.

Among your protections under the MLA, there is an interest rate cap of 36% (referred to as a “Military Annual Percentage Rate” or MAPR), which includes credit insurance premiums and certain other expenses.

Under the MLA you cannot be required as a condition of your payday loan to waive your legal rights under the Servicemembers Civil Relief Act. You also cannot be required to set up an allotment from a military paycheck to pay back the loan.

There are no mandatory penalties allowed under the MLA and you cannot be charged a penalty for early payoff of the loan.

A 2015 update to these laws added more protections to include expanding the program rules to specifically address payday loans, deposit advance loans, tax refund loans, and certain installment loans.

Your protections under these laws may not be automatic–you will need to learn how to claim the specific protections you seek (usually in writing) and where to submit them. Your payday lender may have this information, but given the nature of the industry you would be foolish to leave this important step up to them to tell you when it comes to claiming your rights.

Alternatives To Payday Loans

A lot of financial bloggers, writers, and federal government consumer protection agencies warn consumers against applying for any form of a payday loan. And that is GOOD ADVICE. Military members can consider requesting advance pay that is basically an interest-free loan from the government repaid by allotments from your monthly pay.

Another way to get credit is to apply for a secured credit card which requires you to put a deposit on the card ahead of any spending. Personal loans from a reputable lender or financial institution are also a better option than payday loans, refund anticipation loans, etc.

Military families in financial trouble should discuss their needs with a service-specific relief society such as the Navy Marine Corps Relief Society or the Air Force Aid Society. And there are plenty of veterans service organizations that can help families with qualifying circumstances such as the DAV, AmVets, etc.

You can also check out local charity organizations and non-profit agencies, and there may be a local medical bill relief program near you. Veterans and family members should also explore state and local government official sites for information on outreach, financial relief, and assistance with housing for those in the local veteran community who need help in those areas.

Experian.com advises that some major credit card companies including Mastercard offer credit card options for those with low credit.


About The AuthorJoe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News


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Debt-to-Income (DTI) Ratio Guidelines for VA Loans

by MilitaryBenefits

What do you need to know about debt-to-income (DTI) ratio guidelines for VA home loans? Those new to VA mortgages or home loans in general soon learn that it’s not just your FICO scores that determine whether or not you financially qualify for a mortgage; your debt-to-income ratio also plays a large role in the lender’s decision to approve or deny a mortgage.

Debt-to-Income (DTI) Ratio Guidelines for VA LoansVA Income Verification Guidelines

The lender must first determine what a VA loan applicant’s verifiable income is. This means that the income used in calculating your debt ratio must meet VA criteria for being stable and likely to continue.

That means that some income may not qualify and those earnings will be left out of the ratio for loan qualification purposes. If you earn non-traditional income such as online retail sales as a self-employed person, for example, those earnings would have to show the lender a pattern of stability over time.

The thing to keep in mind about this? Lender standards vary, and while there are some specific guidelines in the VA Lender’s Handbook (VA Pamphlet 26-7), there are also variables that may affect your transaction. The main thing to remember about verifiable income is that the lender must be able to determine your income is dependable and likely to continue.

Some kinds of income count, but only after you have earned for a specified amount of time. If you have not earned commission income for 24 straight months, for example, the commissions may not count toward your DTI ratio. If you have been self-employed for less than two years, that may also apply to those earnings, too.

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Your Debt

Like income, some of your debts count toward your debt ratio, and some do not. Your home expenses count, your credit cards count, and your personal loans and other forms of commercial credit count toward your debt ratio. Utility bills count, child support and alimony count (even though these items may not show up on your credit reports), and child-care expenses count.

Collection actions are counted IF they result in a monthly payment. Your health insurance premiums may not be counted, your grocery bill is unlikely to be scrutinized, etc. Some of these factors vary depending on state law and other variables.

Calculating The DTI Ratio

Verifiable income is essentially your major debts per month divided by your monthly verifiable income. The resulting numbers are converted into a percentage. The higher the percentage, the tougher it may be for your lender to justify approving the mortgage loan.

The lender can run these calculations with and without the new mortgage payment factored in; it’s the DTI calculation that includes the proposed monthly mortgage obligation that borrowers should be concerned with most.

What VA Loan Rules Say About Your Debt Ratio

VA Pamphlet 26-7 advises your participating VA lender that the DTI calculation should not “automatically trigger approval or rejection of a loan.” Your lender is instructed to consider the DTI associated with “all other credit factors.” That means that even if your DTI is considered high, you may not automatically be out of options for VA mortgage or refinance loan approval.

How High Is Too High?

Your debt ratio, calculated with the projected mortgage payment should your VA loan application be approved, is basically the lender’s way of determining whether or not you can realistically afford the new loan.

But many borrowers come to the VA loan process with “compensating factors” such as large cash reserves, the ability to make a down payment or a bigger down payment depending on circumstances, and more.

Maximum Debt to Income And Compensating Factors

That’s one reason why a higher DTI isn’t the barrier to loan approval you might expect (at least in certain cases). But in general if your debt ratio is at or above 41%, your credit will be looked at more carefully and you may require those compensating factors (which may include having a large amount of discretionary income left over after your monthly obligations are met) to get closer to loan approval.

Some borrowers may be able to qualify for a mortgage even with a 50% DTI if they have residual income or other such compensating factors.

Credit And Debt

The more debt you carry, the more of a credit risk you may be–at least in the eyes of the lender. If you also have lower credit scores or a spotty repayment history, the combination of these factors can lead to your loan being denied.

But those willing to spend some extra time working on their credit and debt ratios often have a better time when they are ready to submit a mortgage loan application to a participating VA lender. Here are some facts about taking extra time to work on your debt ratio:

  • All mortgage loan approvals rely on a combination of FICO scores, loan repayment history, and debt ratios.
  • Based on the above, no borrower should rely on credit scores alone when reviewing their finances to determine personal creditworthiness.
  • Borrowers who actively lower the amount of overall debt they carry will improve their own FICO scores over time by doing so.
  • Reducing the balances of your credit cards below 50% (30% is best) simultaneously improves your credit scores AND improves your debt-to-income ratio.
  • The most reliable way to repair your credit ahead of a VA mortgage is to establish 12 months or more of on-time payments on ALL financial obligations, reduce your credit card balances, and avoid taking out new credit in the meantime.

If your DTI is too high when you are thinking about submitting your VA loan application, consider waiting a while longer to lower your balances. Some borrowers can’t spare the extra waiting time for one reason or another; in such cases it’s best to ask your lender how much loan you could qualify for under your current DTI calculations and proceed from there.

VA Loan Rules: The Debt-To-Income Ratio Versus Residual Income

As mentioned above, the lender is required to calculate your debt ratio, including a list of things that must be counted in that tally. Residual income is sometimes interchanged with Debt-To-Income. However, the VA also wants to make certain that you have enough money left over to take care of your day-to-day expenses. In order to qualify for a VA loan, you must meet a specific residual income threshold, which varies depending on the size of your family and where you live.


About The AuthorJoe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News


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Veterans Affairs Dental Insurance

by MilitaryBenefits

The Department of Veterans Affairs offers a VA Dental Insurance Program (VADIP) to Veterans enrolled in the VA health care program and CHAMPVA beneficiaries.  VADIP allows eligible participants the opportunity to purchase dental insurance at a reduced cost.  Veterans can purchase dental insurance through MetLife and Delta Dental at a reduced cost.

*Update: The VADIP program has been extended through December 31, 2021 due to the The Department of Veterans Affairs Dental Insurance Reauthorization Act of 2016.

VA Dental Insurance
Photo by Cpl. Michael Lockett

Multiple plan options will allow participants to select a plan that provides benefits and premiums that meet their dental needs and budget. The offered plans vary and may include diagnostic, preventative, surgical, emergency and endodontic/restorative treatment.  Participants are responsible for all premiums, which range from about $10 to $60 per month for individual plans. Each participant will pay a fixed monthly premium for coverage, in addition to any co-payments required by his or her plan.

Free dental services will continue for veterans with “service connected” dental problems.

Eligible veterans and CAMPVA participants interested in participating in VADIP may apply by mail, online or by phone. For details, visit the VA page on the Dental Insurance Program.

VADIP plans cover many common dental procedures

These may include:

  • Diagnostic services
  • Preventive dental care
  • Root canals and other services to manage oral health problems and restore function (called endodontic or restorative services)
  • Dental surgery
  • Emergency dental care

The costs for your coverage will depend on the insurance company and plan you choose.

Frequently Asked Questions

Who is eligible for the program?
Veterans enrolled in the VA health care program and CHAMPVA program beneficiaries are eligible to participate in VADIP.

Does the program affect VA’s existing dental coverage?
Participation in VADIP will not affect Veterans’ eligibility for VA dental services and treatment.

Can my family participate in VADIP?
Dependents of Veterans, except those eligible under CHAMPVA, are not eligible for VADIP; however, separate coverage options may be offered dependents by the insurance carrier.

What services are offered?
Multiple plan options will allow participants to select a plan that provides benefits and premiums that meet their dental needs and budget. The offered plans vary and may include diagnostic, preventative, surgical, emergency and endodontic/restorative treatment.

Is there a mandatory participation period?
The initial participation period will be at least 12 calendar months. Afterward, beneficiaries can renew their participation for another 12-month period or be covered month-to-month, as long as the participant remains eligible for coverage and VA continues VADIP.


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