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4 Reasons You Should Always Repay Your Loans

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By Gabby Darroch

If you’ve been with me for a while, you know you are not required to repay your policy loans. And if you’ve ever wondered, “If I don’t have to repay my loans, why should I?” let’s set the record straight.

The Caveat

In the initial stages of using your policy it’s important to note that we don’t recommend repaying your loan payments back into your actual policy. Instead, we encourage you to put those payments in a totally separate checking account. This is simply because why pay back money you’re just going to use again and again for things like paying off debt, financing a car, or buying a house. And a checking account is a bit easier to access than the money in your policy.

There may come a time in your life where most of your immediate financial needs are met (ie. debts are paid off). It is at this point that we encourage you to put all money stored in that separate checking account back into your policy to repay your outstanding loan balance. And here’s why:

Repaying your loan to your policy means:

  1. You’re rebuilding your available cash. You have a cash account for the purpose of financing your needs in life at any moment. But when you Repay your loan to get more moneytake loans from your policy, you deplete the amount you can take on a loan. So by rebuilding the cash value in your account, you’re allowing your future financial needs to be met with a loan later on. This keeps your money in motion and working hard for you.
  2. You’re replenishing your death benefit to the full amount. Remember, when you take a loan, your death benefit covers all your existing unpaid loan amounts and whatever is left goes to your beneficiary after you “graduate.” Repaying your loan means that you are replenishing the full amount of your death benefit that will be paid to your beneficiary.
  3. You will restore your full dividend earning potential (if your contract is with a direct company). Direct companies don’t always give you the full dividend depending on your outstanding loan balance. When you repay your loan, you’re able to collect the full dividend amount that is owed to you.
  4. You reduce the charge on your interest payment. If you recall, when you take a loan you are actually being loaned the insurance company’s money. They charge an interest rate of about 5% for this privilege. So paying back your loans to the insurance company will result in a lowering of your interest rate on subsequent loans. This frees up more money for you. (To learn more about the interest you are charged on your policy loans, check out this article.)

The Gist of It

So yes, you don’t have to repay your loans. But it benefits you most to do so, if done at the right time in your life. Just remember, you do always want to pay the interest on that loan back to the insurance company. That is required.

To learn more or get started, please visit www.TheMoneyMultiplier.com. Scroll to the very bottom and click on “Member Area.” Enter the password “bankwithbrent” and watch the presentation that appears on the next page.

When you’re ready to get started on creating your financial legacy or if you have more questions, please email us at [email protected] . Or you can give us a call at 386-456-9335, and one of our mentors will be in touch with you.

VA and FHA Mortgages & the Housing Boom (Part 2)

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Military Experience Eligibility for VA Loans

How does a retired or active military personnel member qualify for a VA loan based upon their military experience?

* An earlier discharge date for a service-connected disability may still qualify you.
** Officers who separated from service after 10/16/81 may be eligible.

For more details, please visit The U.S. Department of Veteran Affairs’ website to learn about VA mortgage loan eligibility benefits:
https://www.va.gov/housing-assistance/home-loans/eligibility/

Once an active or retired military person meets the minimum qualifying guidelines, he or she will be given a Certificate of Eligibility that’s issued by the Department of Veteran Affairs. The VA mortgage loan applicant will then send a copy of the VA Certificate of Eligibility (VA Form 26-1880) to their mortgage broker or banker. For VA loan applicants who do not have a copy, they may complete a form entitled Request for a Certificate of Eligibility (Fillable) that’s linked here:
https://www.vba.va.gov/pubs/forms/VBA-26-1880-ARE.pdf

The Evolution of VA and FHA Loans

Near the end of World War II, the VA home loan program was created in 1944 as part of the original Servicemen’s Readjustment Act that’s also referred to as the GI Bill of Rights. The VA loan benefits were signed into law by President Franklin D. Roosevelt. A portion of each funded VA mortgage loan was guaranteed by the federal government in the event that the VA borrower later defaulted on the loan and lost the home in foreclosure. This way, each bank that funded the 100% loan for qualifying VA borrowers had much less financial risk.

Specifically, there were two types of government-backed or insured mortgage loans that stimulated the housing market and helped the U.S. economy prosper and rise up out of the previous negative Great Depression (1929 – 1939) years – VA and FHA (Federal Housing Administration) loans. These more flexible residential mortgage loans were part of President Roosevelt’s New Deal plan and the National Housing Act of 1934 that were designed to create more jobs and boost home values and the economy once again.

Since 1934, FHA has insured over 34 million home mortgages nationwide. As per the U.S. Department of Housing and Urban Development (HUD), FHA has active insurance on over 8 million single-family mortgages. In total for both residential and commercial real estate properties, FHA’s insurance portfolio exceeds $1.3 trillion.

To learn more about the Federal Housing Administration (FHA), please visit HUD’s website:
https://www.hud.gov/program_offices/housing/fhahistory#:~:text=Congress%20created%20the%20Federal%20Housing,workers%20had%20lost%20their%20jobs.

VA and FHA Loans for Buyers, Sellers, and Owners

The main difference between FHA and VA is that the government insures a portion of the FHA loan while guaranteeing a portion of a funded VA loan. The vast majority of home loans funded nationwide over the past 10 years, directly or indirectly, were either government-backed (VA) or insured (FHA) and/or purchased in the secondary markets by other government-sponsored or federal entities named Fannie Mae, Freddie Mac, or Ginnie Mae.

FHA loans allow borrowers to qualify with 3.5% down on average (96.5% LTV) with lower FICO credit score options near 580 and easier overall underwriting allowances. FHA also allows seller credits and gifts from family members toward down payments that can effectively make a purchase loan become near 100% LTV also. However, borrowers will have to pay an additional monthly insurance premium along with their mortgage payment that can reach a few hundred dollars per month, depending upon the borrower’s FICO credit score, loan amount, debt-to-income (DTI) ratios, and LTV (loan-to-value). There are more flexible FHA Streamline refinance programs available as well that are similar to the VA Streamline.

For qualified VA borrowers, there is perhaps no better mortgage loan option available while FHA loans might be the second best option for high LTV loans. This is especially true as 30-year fixed mortgage rates continue to hover at or near all-time record lows while making many mortgage payments more affordable than rent even when the home is financed up to 100% of the purchase price.

To date, VA and FHA have guaranteed or insured over 58 million mortgages for homeowners. Home sellers should welcome any VA or FHA buyer prospect who has a pre-approval letter from a mortgage lender. This is because the lender is prepared to provide up to 96.5% LTV for FHA or up to 100% LTV for a VA loan. Amazingly, both FHA and VA loans can close in a few weeks or less due to expedited online application processing options.

Rick Tobin

Rick Tobin has a diversified background in both the real estate and securities fields for the past 30+ years. He has held seven (7) different real estate and securities brokerage licenses to date, and is a graduate of the University of Southern California. Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), equity funds, and foreign money sources. You can visit Rick Tobin at RealLoans.com for more details.

VA and FHA Mortgages & the Housing Boom (Part 1)

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By Rick Tobin

The most flexible and easiest qualifying mortgage loan product in America is the VA (US Department of Veteran Affairs) mortgage loan. Between 1944 and 1966, approximately 20% of all single-family homes built or purchased were financed by the VA home loan program for active military or retired veterans of World War II (1939 – 1945) or the Korean War (1950 – 1953). From 1944 through 1993, the VA mortgage loan program guaranteed almost 14 million home loans. By 2013, the VA had guaranteed over 20 million loans. As of 2019 in the VA’s 75th anniversary year, VA had surpassed 24 million loan guarantees for borrowers.

Did you know that there are 100% LTV (loan-to-value) mortgage loans available to qualifying active or retired military personnel up to $1.5 million dollars for owner-occupied homes as of 2020? Yes, a qualifying VA mortgage applicant has the option to purchase a home priced as high as $1.5 million with no money down. These 100% LTV loans have no additional monthly mortgage insurance payment requirements like required for most other mortgages with a loan-to-value range above 80% of the purchase price or appraised value.

VA Loan Guidelines

Purchase

Mortgage loan underwriting guidelines are subject to change and may have some exception allowances for mortgage borrower applicants due to factors such as credit scores, income, job history, debt-to-income ratios, and property types. However, these are common VA loan terms or guidelines that were available as of June 2020:

  • No money down up to $1.5 million for owner-occupied borrowers (not second homes or investment properties)
  • Historically, a debt-to-income ratio of up to 41% DTI* was typical for VA borrowers. However, some VA loan programs allow up to 60% DTI or higher
  • No monthly mortgage insurance premium requirements
  • FICO credit scores as low as 620

* Debt-to-income ratio (DTI) = Borrower’s proposed mortgage payment plus monthly consumer debt obligations that are divided by monthly income. A borrower with $2,500 in monthly debt payments and $5,000 in monthly gross income (before taxes) will have a 50% debt-to-income ratio ($2,500 / $5,000 = 50%).

VA Loan Refinance

For existing VA mortgage borrowers under newer 2020 rules, VA borrowers can pull cash out of their property up to 100% of their property value. For example, a homeowner with an existing $250,000 mortgage loan secured by a property valued at $500,000 could apply for a new $500,000 cash-out loan that gets them upwards of $250,000 additional cash-out that they could use to pay off credit cards, student loans, automobile loans, business debts, or use the funds to make new property or stock investments.

A mortgage borrower in a non-VA loan can refinance from a conventional bank loan or an FHA loan with costly monthly insurance premium (MIP) payments into a new VA loan if one or more of the borrowers has VA eligibility.

Another easier qualifying VA refinance loan option is generally referred to as a “VA Streamline” (IRRRL – Interest Rate Reduction Refinance Loan). With some non-credit qualifying VA Streamline loan programs (subject to change), the borrower’s application process includes:

  • No minimum credit score
  • No appraisal required
  • Primary and non-owner occupied properties may be allowed
  • Must be current on existing mortgage loan about to be paid off
  • Manufactured homes attached to the foundation may be eligible

To learn more details about qualifying for VA refinance loans, here is a link to VA Pamphlet 26-7, Revised, Chapter 6: Refinancing Loans

https://www.benefits.va.gov/WARMS/docs/admin26/pamphlet/pam26_7/Chg_17_ch_5.pdf

Rick Tobin

Rick Tobin has a diversified background in both the real estate and securities fields for the past 30+ years. He has held seven (7) different real estate and securities brokerage licenses to date, and is a graduate of the University of Southern California. Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), equity funds, and foreign money sources. You can visit Rick Tobin at RealLoans.com for more details.

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