Lazy Man and Money

Refinancing Your Home Through the VA

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If you are struggling with the interest rates and payments on your current loan, are looking to refinance, and are a veteran, active service member, you might want to consider looking into the loan options available through the Veteran’s Administration (VA). If you are a spouse, or surviving spouse, of a veteran or service member, you could also qualify for a loan guaranteed by the VA.

The biggest advantages of refinancing through the VA is that you can refinance up to 100-percent of your home’s value, even if you don’t have equity, and you don’t have to pay for mortgage insurance.

There are three options available to eligible homeowners: The Interest Rate Reduction Refinance Loan (IRRL), Cash-Out Refinancing, and converting a Conventional Loan to a VA Loan.

The Interest Rate Reduction Refinance Loan (IRRL)

This option is available to borrowers who already have an existing VA home loan. The IRRRL allows you to reduce your interest rate to reduce the monthly payments on your loan. You can also use the IRRRL to shorten the term of your loan, so that you can pay it off faster.

The advantage to the IRRRL is that the VA does not require a credit check or appraisal for you to qualify for the loan. It’s also possible to get the loan without having to pay out-of-pocket for closing costs and other fees. However, the fees for the IRRL are generally lower than they would be for a conventional loan.

The disadvantage to the IRRRL is that you can’t use an IRRRL for a cash-out refinance. Also, you might end up paying more in interest if you opt to shorten the term of your loan, or avoid closing costs. You also cannot use the IRRRL to pay off a second mortgage on your home, without first getting approval from the second lender.

If you have an existing VA loan and do not need a cash-out refinance, the IRRRL could be the option for you.

Cash-Out Refinance

This option is available to borrowers who already have an existing VA home loan and want to borrow against the equity in their homes. You can use the cash-out refinancing program to get money to put back into your home, and you can also use it if you have a double mortgage to consolidate them into a single payment, and possibly at a lower interest rate.

Just like the IRRRL, you can refinance up to 100 percent of your home’s value, but you will need to pass a credit check and have an appraisal of the property. However, you won’t have to make a down payment or pay for private mortgage insurance, and there will be limits on the amount that you’ll have to pay in closing costs.

If you have an existing VA loan, a strong credit history, and need cash-back, a Cash-out Refinance could be the option for you.

Convert a non-VA loan into a VA Loan

The process of converting a non-VA loan into a VA loan is similar to a cash-out refinance. The difference is that you don’t already have a VA loan, so you also have to make sure you meet the VA’s eligibility requirements.

Once you meet the requirements, you’ll have the same advantages and disadvantages as someone doing a cash-out refinance on an existing VA Loan.

Getting a VA Loan

VA loans and IRRRL loans are both handled by private lenders like Lowvarates.com, who might also offer other refinance options the would allow you to use the equity in your home for a specific purpose, such as home improvement or debt consolidation.

If you have never applied for a VA loan before, you will also need to gather and submit the necessary documentation to get a Certificate of eligibility from the VA, which you will need to present to the lender.

Once you have proven your eligibility, the process of applying for the loan is similar to that of a conventional loan – the lender will do a credit check, appraise your home, and determine how much they can lend you. The only exception to this process in the IRRRL, for which there is no credit check or appraisal.

As you can see, there are a lot of advantages to refinancing through the VA, especially if you already have a VA loan. This is because the VA guarantees the loan, which gives both lenders and borrowers peace of mind. Because of that guarantee, you don’t need to make a down payment, you’ll have significantly lower fees and closing costs, and you can get some loans without a credit check.

If you are a veteran, active service member, or eligible spouse or widow(er), VA refinancing could be the best option for you.

Sometimes, Luxury is the Most Financially Sound Option

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[Today’s article comes from a new author, Megan Sullivan. She’s got a different perspective on personal finance, that I don’t necessary subscribe to, but I thought it was worth exploring. It’s probably because I’ve got two small kids, but I’d certainly value a couple of trips to Applebee’s. You’ll see what I mean in the article below.]

What makes something affordable? Is it really only a matter of the price tag? You might think so at first glance. But closer inspection reveals a more nuanced truth. If I offered you a used Yugo for $10,000, you might balk at the idea, and rightfully so, as the best of them didn’t cost that much when they were new, and actually being made. Whatever stock there is remaining has certainly not gone up in value. But what if I offered you a brand new Mercedes fresh out of the factory for that same $10,000? Suddenly, it is the most affordable thing you’ve ever heard of. What changed?

Affordability, cost effectiveness, and financial soundness (whatever term you prefer) are all relative. In a vacuum with nothing else available for comparison, those concepts are meaningless. So if you find yourself looking to make a big-ticket purchase, regardless of what you might have heard, there are times when the luxury item is the more financially sound decision. Here are a few factors to consider:

How Long Will It Last?

Back in 2006, nbcnews.com did a report on the life expectancy of the average automobile. Based on data from Consumer Reports, it was about 8 years. That is not particularly impressive when measured against the fact that 1995 Mercedes Benz parts are still being bought on aftermarket sites by happy owners of a 20 year-old vehicle. With reasonable upkeep, those cars are still going strong, with no signs of stopping.

In financial terms, what is a financially sound amount of money to spend on a car? A big part of the answer is dependent on how long you plan to keep it. If you are going to turn it over every two to five years, you should probably think about leasing. If you plan to keep it for a long time, and even pass it down to your kids, a luxury car that is built to last could make a lot more sense.

How Important Is the Experience of Using the Product to You?

Sticking with cars, do you consider driving a utilitarian function, or is it an experience worth savoring? If you are the type of person who only cares about getting from point A to point B, then utility is all that matters. You are unlikely to place a very high premium on experience. However, if the drive is more important than the destination, you may be willing to accept less utility for a greater overall experience.

Safely getting from point A to point B is a necessity. Any experience above that is a luxury. Perhaps that experience you seek is sudden acceleration, raw speed, or race-track performance. Those are still luxuries just as much as heated leather seats, mahogany accents, and foot-massaging floor mats.

If those are the experiences you desire, then you don’t save any money by purchasing something without those features. You will not be happy with your purchase. You might even buy a bunch of expensive, aftermarket modifications to try to get what you should have bought in the first place. There is no substitute for experience.

Does It Scratch the Itch?

How much anxiety and dissatisfaction are you willing to put up with over not getting what you really wanted? When a company offers an inferior product at a steep discount such as two for the price of one, they are hoping to make up for in volume, what they cannot offer in ultimate satisfaction. You don’t want two meals at Applebee’s. You want one great meal at Ruth’s Chris. You don’t want two Blackberry phones. You want one iPhone. You don’t want two Chromebooks. You want one MacBook Pro.

Accumulating a bunch of “reasonably priced” items that you don’t want is not nearly as efficient as getting the one thing that will satisfy you in the first place. The same is true for allowing price to trump experience and longevity. When it comes to making the most financially sound decision, sometimes the luxury item is the better deal.

Skint to Mint: How We Messed Up Our Finances and Came Out on Top

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[The following is a guest post from Maria Nedeva, owner of The Money Principle. I met her at Fincon a couple of years ago and we just hit it off. She’s the proverbial smartest person in the room, so I knew she was going to deliver an awesome guest post. When I read it, I thought, “This is exactly how we’ve been able to save hundreds of thousands of dollars over the last decade.”]

I have a story to tell.

But first I want to say ‘respect’ to Lazy Man. I’ve long admired the honesty, passion and moral stance of Lazy Man and Money: love the blog and like chatting to the man behind it. Oh, and I have wanted to guest post on it for about a year: I just never got the guts to ask. This is why I jumped at the opportunity when Lazy Man asked me to guest post. Of course I wasn’t going to miss talking to you.

And as I said, I have a story to tell.

In January 2010 we were approximately $160,000 (£100,000) worth in consumer debt. At the end of January 2015 we have approximately $160,000 (£100,000) worth of liquid savings and investments.

We went from financial ‘suck’ to ‘rock’ in five years.

People ask me how we did it and expect a story of epic struggle and sacrifice.

What they get is the story of a university professor who researched, learned, analysed and worked out hacks.

What they also get is the story of a woman who had had enough of debt and acted on every single hack she worked out.

That’s me!

Maria Nedeva, Owner and Mistress Supreme of The Money Principle.

Now you have to make a choice.

You can either go on The Money Principle and try to find your way around the nearly 800 blog posts I’ve written and published on paying off debt, money management, saving and investing, making money and retirement;

or…

… You can stick around and learn about the three things that helped us turn our finances around.

It’s your call but I’d stay put if I were you.

What paying off debt fast is really about?

People will tell you that paying off your debt, and more generally building wealth, is about living below your means.

Hard to argue with something as obvious.

Still, important as it is, living below your means is not enough. Here are four hacks you’d do well to remember:

Hack 1: To pay off your debt – and to pay it off in record time – you should watch your cash flow as a hawk. Oh, and your single point of focus should be how to increase your cash flow, not your debt.

Hack 2: Don’t strip spending down to bare necessities. Allow yourself some of the things you love and learn how to do them differently and much cheaper.

Hack 3: Learn how to make more money. Don’t wait for your big break. Just start doing something. Check out some ideas about how to make money enough to fill your fridge or to pay your monthly bills on The Money Principle. Trust me; babysitting is not even on the list.

Hack 4: Put every penny of your increased cash flow on your debt. Open a beer and watch it crumble.

That’s it. You have to do a lot of other things as well but these four hacks are what matters; the rest follows.

We paid off $160,000 (£100,000) worth of consumer debt in three years. You can do it too!

What does it mean to be a ‘frugal artist’?

Quite a few of my blogger friends are on the frugality side.

So is much of personal finance in the United Kingdom – frugality is respected and admired while making money and investing is seen by some as an expression of greed.

I never bought into the frugality mind set.

Don’t misunderstand me. I like to make my money go further just as much as the next woman; or man, for that matter. It is just that I like to stretch my dollar without losing quality of life.

And I like to make more dollars so that my money stretches even further.

I know, I’m weird like that.

I came up with the idea of ‘frugal artistry’ and have even written a manifesto for frugal artists.

In a nutshell, ordinary frugality and frugal artistry are different in the following:

Frugality as an art formOrdinary frugality
ThinkingComplex thinking accounting for a number of factors.Absolute thinking considering very limited factors.
ConcernsBroad concerns including quality of life and relationships.Narrow financial concerns.
Time horizonLong term prospects.Short term gains.

Put another way, making our bread saves us close to $50 per month. If it were only for the saving, though, I won’t do it. I do most of our baking because, apart from saving money, it helps me relax and is much healthier than buying bread with a ton of additives. This is what being a frugal artist is about.

Buying a cheap suit can be part of ordinary frugality. It saves you money in the short run but is very wasteful long term. One, cheap suits need to be replaced sooner and you may find that ultimately you spend more. And two, wearing cheap suits can jeopardise a promotion at work.

Becoming a frugal artist is worth it. This way, you can make your money go further without loss of quality of life.

What is the ERR strategy for money management?

The ERR strategy for money management is about three things:

  • Eliminate (waste);
  • Replace (what you do and/or how you do it); and
  • Reduce (consumption).

Using this strategy assumes you already have a budget. If you don’t have one, you should.

I came up with this strategy for money management to bring together three very important sides of keeping your budget as lean as a Hollywood starlet without depriving yourself. It was featured on LifeHacker’s blog Two Cents as a way to practice frugality.

I suppose it is.

Eliminating waste is about two things: not wasting food and not paying for things you no longer use or you can get cheaper without loss of quality. We, for example, cut over $3,000 of monthly spending by buying only what we cook, finding competitively priced insurance and planning our entertainment carefully.

Replacing activities and routines is about becoming a frugal artist. Can you impress your friends by cooking a three course French dinner rather than going to a restaurant? Do you have friends who have a summer house and can you borrow it for couple of weeks? Can you barter for some of the services you need (for example, do the neighbours garden if they babysit your kids twice a week)?

Reducing consumption is easy to understand. We all over-consume. We drive to the gym. We have rooms full of clothes we wear couple of times and discard. We over-eat, over-drink and over-indulge. Do you really need 30 pairs of shoes?

Go try the ERR strategy. You’ll shave off 20%or more of your monthly budget, I guarantee.

Finally…

Now you know my secrets.

Turning your finances around is not hard if:

  • You watch your cash flow and increase it continuously.
  • Teach yourself to be a frugal artist.
  • Apply the ERR strategy for money management twice per year.

You know what is the best part of all this?

Once you make the three things I was telling you about into habits while you are paying off debt these are easy to keep when you finish with the debt. And the wealth just keeps growing.

This is our story.

Care to share yours?

So You Have a Huge Student Loan (Like Me), Here Are Your Options

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[Editor’s Note: I’m still shoveling out of two feet of snow, so today we have a guest post from Grant Biles, the co-founder of Gradible. The company helps people on how to eliminate student loan debt. The following is his guide on what students can do to pay off their loans. I’m often offered guest posts that are very self-serving, so it is refreshing that some of the suggestions don’t require the use of his company’s services. Hopefully tomorrow, we’ll get back to our regularly articles.]

Options

I’m one of the more than 40 million Americans who holds student loan debt, and if you’re reading this, I imagine you or someone you love does, too. Two out of 3 undergraduates leaves school with student debt these days, and the average graduate has more than $30,000 in student loan debt.

In my role as a co-founder of Gradible, a platform that helps people with student loan debt pay it back faster, I have talked to thousands of graduates across the country about their different situations and needs regarding student debt. The two biggest takeaways from these conversations are that student loan debt situations are varied and most people want to manage the repayment of their debt in a balanced way: they want to continue to have a fulfilling life, while also eliminating the debt as quickly as possible.

My team and I have done extensive research and found many of the most effective and helpful options for the variety of different situations that student loans present their holders. If you’re staring down a huge monthly student loan payment and wondering how you’re going to afford all your necessities, or just want to eliminate the small amount of debt you took on as quickly as possible, we’ve found answers and options for you.

Options for Managing and Repaying Your Student Loans

  • Modifying Repayment Terms

    The direct impact of student loans is not the total balance, it’s the monthly obligation that must be balanced with all of life’s other necessities and nice-to-haves. Additionally, there are many ways through which you will be able to reduce your student loan payments over time.

    We have found that, especially for recent graduates still working their way up the salary ladder, Income Based Repayment is a very helpful tool. This pegs your monthly payment at 10% of your take-home pay. You can file for it at the link above. The downside of this program is that by reducing the monthly payment, you naturally are extending the repayment lifetime and therefore the total amount of interest you will pay. If you are unemployed, have had trouble finding a job, or been very ill, you can also work with your student loan servicer to enter forbearance or deferment. These programs stop the repayment of your loan for a fixed amount of time, if you qualify. Again, the catch here is that your repayment lifecycle increases, because interest continues to accrue in almost all situations.

  • Student Loan Repayment Services

    My company, Gradible, offers a variety of flexible ways to earn your way out of debt faster and manage your monthly payments. We source offers from businesses such as cashback deals on shopping, surveys and studies, short freelance projects, and more, that you earn credits for completing. We then redeem these for you directly to your student debt. We’ve helped graduates pay off more than $200,000 in student loans in the past year, and we’d love to help you, too. Another service that offers cash back to your student loans is SmarterBucks. Check out these two websites to begin accelerating your rate of repayment.

  • Part-time work

    When you think of part-time jobs, your mind likely goes to the old standards: manual labor, restaurant and bar work, or retail. All of these options can provide you with extra cash to meet liabilities like student loans. Additionally though, in our modern, smartphone-driven age, there are a variety of more flexible opportunities that could be more appealing to earn the extra cash you seek. Here are just a handful of the most popular:
    You can drive an Uber or a Lyft.
    You can deliver packages as a Postmate.
    You can do odd jobs as a TaskRabbit.
    You can pick up and deliver groceries for Instacart.

  • Refinance your loans or get them forgiven

    If you qualify (and full disclosure this is last because so few people do) for the following programs, they can significantly reduce your monthly payment and total amount you repay. CommonBond and SoFi offer refinancing for graduate degrees, but have stringent criteria for income, occupation, and degree type. LendKey also offers consolidation and refinancing products. If you qualify, these are a great way to reduce your interest rates and monthly payments, but the reality is that very few people will qualify for this, due to income and debt levels. Credible is a great site if you want to compare all of your refinancing options in one place.

    If you are currently working in a public service capacity, the Public Student Loan Forgiveness Program is something you definitely should consider. This program helps teachers, firefighters, police, public defenders, and other civil servants reduce monthly payments in a similar manner to Income Based Repayment (10% of monthly take-home pay), and it qualifies you to have your loans completely forgiven after 120 consecutive on-time monthly payments.

This list is not exhaustive, but it does present you with most of the options we’ve found. I’m obviously biased, but I think Gradible makes the most sense for the most borrowers, so give us a shot, and I hope this guide is helpful. Good luck getting to zero.

This Man has a $100,000,000 IRA – Here is the Secret to his Success

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[Editor’s Note: The following is a guest post from Kirk Chisholm is a Wealth Manager and Principal at Innovative Advisory Group. I met him at this year’s FINCON personal finance blogger convention. He has unique expertise in an very rarely covered area of investing… the self-directed IRA. Fortunately, he agreed to share some this expertise with readers of Lazy Man and Money.]

His self directed IRA is worth over $100,000,000

I’ll bet your first thought is that this headline is an exaggeration. In fact, it isn’t. There is at least one person who has accomplished this feat with their IRA and there could be as many as 314.

According to a GAO report released on November 9th 2014, 314 people had an IRA worth more than $25,000,000. Unless you live in a cave and don’t own a TV, smart-phone, or computer (which means you wouldn’t be reading this) you know who he is. While you may not know him personally, you probably know all about him, his family and details about his life that most people wouldn’t care to disclose. You may have even voted for him… Yes in 2012 you may have voted for him. This man’s name is Mitt Romney.

The Mitt Romney IRA

According to public disclosures required to run for public office of the President of the United States, Mitt Romney is said to have $100,000,000 or more in his self directed IRA. While the recent GAO report does not disclose who these people are that have IRA account balances of over $25,000,000, it does state that there are 314 of them. There are also 791 people with IRA account balances of between $10,000,000 and $25,000,000, and 7,952 people with IRA account balances of between $5,000,000 and $10,000,000. That is over 9,000 people who have extra large IRA account balances.

Click for larger version of image

Mitt Romney worked at Bain Capital for 17 years and 7 years prior to that at Bain & Company for a total of 24 years. Add that to the 11 years after that (2012) and Mitt Romney had 35 years to accumulate $100,000,000. During that time period the maximum contributions allowable to a 401k plan was $30,000 and up to $35,000 in 2001. Let’s say Mitt contributed $30,000 annually to his 401k plan and earned 20% annually, he would have $100,000,000. Considering Warren Buffett only made 19.7%1 annually for 43 years, this means Mitt Romney is a better investor than Warren Buffett.

These self directed IRA numbers are not unreasonable

Peter Thiel is also known to have an extra large Roth IRA (which allows you to have tax-free growth) due to his early-stage investment in Facebook and other private investments. There are numerous other similarly successful investors who have used this secret knowledge about self directed IRAs to benefit from tax-deferred growth.

But let’s be realistic…

You don’t need $100,000,000. What would you do with it?

I personally think Monty Brewster had the right idea. If you haven’t seen the movie, it is a classic.

While spending $30,000,0000 in 30 days or running for Mayor are interesting ideas, most people don’t need $100 million dollars. You don’t even need half that. Most of the IRA account holders would be happy with even fraction of $100 million.

Regardless of your ideal amount needed for your retirement, hopefully this insight into some very wealthy and smart investors will give you an idea about how you can take advantage of this knowledge and grow your own self directed IRA.

Here is how you can start using your self-directed IRA to take control over your retirement

The first step is to start contributing to an IRA or 401k. Hopefully you already have an IRA or 401k. If so, then you have already taken the first step.

The next step is finding a suitable investment or investment strategy. I would suggest that you first think through what you are an expert in and how you could profit from that knowledge. If you are a farmer, consider investing in a farm, crops, livestock, or commodity futures. If you work in the world of real estate, find a solid investment property, tax lien, or private mortgage to invest in. If you work with business owners, find a private enterprise that needs capital to grow and invest in that company. There are virtually a limitless supply of investments or investment strategies to consider. As Peter Lynch said, “Invest in what you know.” If you follow this sage advice, you will be ahead of most investors.

What is an alternative investment?

Alternative investments do not have a clear definition. Some people use the term to characterize hedge funds, managed futures, or other similar type of fund. Other people use the term to describe a certain trading style: a long-short, hedging through options, or specialized trading strategy. I would characterize any fund, strategy, or individual investment that is publicly traded or holds publicly traded securities as a traditional investment.

Alternative investments would be defined as non-publicly traded investments. Examples of these investments would be: real estate (commercial, residential, multi-family, raw land, timberland, farmland, industrial), private notes or mortgages, tax liens, equipment leasing, oil & gas LPs, private company stock, franchises, horses, livestock, intellectual property, and more.

Why limit yourself to the stock market? Don’t let Mitt Romney have all the fun. The world is your oyster when it comes to investments. Find investments that work for you.

Can I make these investments at my brokerage firm?

Technically you could, but it is unlikely that they will allow it. Most broker dealers (brokers) and custodians are not equip to handle alternative assets effectively, so they don’t allow it. There is a high likelihood that you will have to seek out a self directed IRA custodian to custody these alternative investments. My company, Innovative Advisory Group, has created a list of self directed IRA custodians to help with your search. Contact us to request this list.

How much money do I need to set up a self directed IRA?

While some mutual fund companies will allow you to set up an IRA with $500 or even as little as $100 in monthly contributions, that may not be a beneficial approach with self directed IRAs. Each self directed IRA custodian charges fees for their services and there is no uniform approach to how they charge. Some charge per transaction, some charge a percentage based on the assets which are held at the custodian, and others charge a combination of both. You can learn more about self directed IRA custodians by reading my detailed article on choosing one.

Are there any risks to using a self directed IRA?

The short answer is… Yes

Any investment carries risk, whether it is AIG, Lehman Brothers, Johnson & Johnson, or any other publicly traded stock or bond. You should always fully understand the risks in the investment you are making.

The primary risks with self directed IRAs you should be aware of are:

  • Prohibited transactions – You need to know the self directed IRA rules.
  • Disqualified persons– certain people cannot be a part of self directed IRA investments.
  • Annual Valuations – These are a requirement. Make sure you get the correct type of valuation.
  • Improper risk management and due diligence– always do your homework on any investment.
  • Fraud from investment sponsors (see SEC alert) – know what you are investing in.

Why don’t more people use self directed IRAs to grow their retirement savings?

This is primarily due to a lack of knowledge that it is possible to invest in alternative investments with a self directed IRA. Less than 5% of the IRA account owners hold alternative investments in their IRA, and less than 20% of the population has even heard of the self directed IRA2. Many people learn things through advertising, and since none of the self directed IRA custodians do mass marketing in a traditional way, it is not surprising that only a small segment of the population is using this IRA secret.

Is a self directed IRA right for you?

Everyone should use a self directed IRA or similar retirement account to save for their retirement. This is essential if you want to benefit from tax-deferred growth in order to live comfortably when you retire from your job. However what you should invest in with that retirement account will be unique to each person. Investing in alternative investments with a self directed IRA is not for everyone. Due to the many caveats in the Internal Revenue Code, you should only consider this approach if you have professional guidance, or you have a strong grasp of the rules.

If you want to learn more about self directed IRAs or self directed 401ks, you can contact me to learn more.

Reference:

1. Berkshire Hathaway annual report
2. Investment Company Institute

About the author: Kirk Chisholm is a Wealth Manager and Principal at Innovative Advisory Group (IAG), an independent Registered Investment Advisor. His roles at IAG are co-chair of the Investment Committee and Head of the Traditional Investment Risk Management Group. His background and areas of focus are portfolio management and investment analysis in both the traditional and non-traditional investment markets. Kirk has an extensive understanding of the regulatory and financial considerations involved with investing alternative investments in self directed IRAs and 401ks. He received a BA degree in Economics from Trinity College in Hartford, CT. For more information on Kirk or Innovative Advisory Group you can visit www.innovativewealth.com

Disclaimer: This article is intended solely for informational purposes only, and in no manner intended to solicit any product or service. The opinions in this article are exclusively of the author(s) and may or may not reflect all those who are employed, either directly or indirectly or affiliated with Innovative Advisory Group, LLC.