SBP Terminates at Death of Covered Former Spouse

Aug 29 2014

retiredcoupleUpon divorce a retiree must notify DFAS to either suspend Survivor Benefit Plan (SBP) coverage or provide the former spouse SBP coverage. Former spouse election is made either by the ‘retiree election’ or by a court-ordered divorce decree.

A June 2013 legal review of Defense Finance Accounting Service (DFAS) practices determined that SBP is irrevocably terminated upon the death of a covered former spouse SBP beneficiary – meaning the military retiree does not possess the option for resuming SBP coverage for a current or a future spouse.

In addition, DFAS recently suspended SBP payments already being paid to a widow after it was determined that the current spouse coverage should never have been permitted following the death of the covered former spouse. The SBP annuity payments were later grandfathered and resumed in this particular case.

This “wrinkle” appears to stem from a statutory interpretation that a former spouse must be alive in order for the beneficiary to be changed, and in some cases, this would mean amending the divorce decree to consent to termination of their former spouse SBP coverage. In other words, the SBP insurance terminates upon the death of the former spouse and cannot be reassigned.

Prior to the June 2013 legal ruling , following the death of a former spouse SBP beneficiary, DFAS allowed retirees to resume SBP coverage for current spouses within 12 months; or if not married at the time of the former spouse’s death, within 12 months of remarriage.

MOAA does not agree with this reinterpretation and supports the long standing practice of allowing retirees to resume SBP coverage after the death of a covered former spouse, similar to the practice of allowing retirees to resume SBP coverage after a living former spouse provides consent to no longer being the SBP beneficiary.

The situation is very complicated and affected MOAA members are encouraged to contact MOAA’s Benefits and Financial Education Staff for more details.

Email BenInfo@moaa.org or call (800)234-6622 (MOAA).

 

No responses yet

Yes, You Can Have 2 VA Loans…At the Same Time. The VA 2nd Tier VA Loan

Aug 25 2014

Published by under VA Benefits

HouseSoldBy Joe Gladden, Veteran Realty Serving America’s Military, and Susan Wallace, Senior Loan Officer, Access National Bank

If you weren’t aware of this, you certainly aren’t alone. In fact, many lenders experienced with VA loans, and Realtors, are not aware of this very powerful financial tool.

Clearly, purchasing a second home is not for everyone. Occupational required moves, financial goals and planning are very individual in nature. But when purchasing a second home is a consideration, with a first home financed with a VA loan, a 2nd Tier VA Loan should be considered. Generally speaking a 2nd Tier VA Loan is a good option when the first home was purchased in an area with a lower entitlement than the area where the second home would be purchased. The entitlement amount for the 2nd Tier VA Loan will be based on the current maximum entitlement in the county where the second home is to be purchased. Otherwise stated, generally, when the first VA financed home is in a lower cost area than where the second home is located, the 2nd Tier Loan is more likely to be an excellent option.

Confused? Consider this example with our fictitious military family:

Colonel Smith and his wife purchased a home with a VA loan during an early career tour in Florida for $200,000. After transferring, they kept the home and VA loan for 20 years hoping to retire in the home, renting it out much of the time. Since there is only a modest balance on this loan that will be paid off in a few years, they would like to keep the home and financing in place.

Colonel Smith recently received orders to the Pentagon for his final tour and expects to work in the DC area in defense contracting after retirement from the Air Force for at least five years. They have two children in college and have used most of their cash reserves for tuition and expenses. They both have excellent incomes and credit, and have found the perfect home in Fairfax County for $700,000. They initially assumed that since their VA loan was tied up in the Florida home, they would have to get a conventional mortgage by putting 10% ($70,000) down, which would be a stretch.

On a whim the Smith’s Googled “VA Loans” and came across an article about a little known VA Loan option called the 2nd Tier VA Loan. Upon further research, here’s what he discovered:

He could in fact have two VA loans at the same time. Using what is called 2nd Tier or Bonus entitlement, Col Smith found that in his situation he had $492,500 available at 100% financing for a 2nd tier VA loan. With the purchase price at $700,000 his loan officer explained that he would need a down payment, but it was only $51,875 vs $70,000 for a conventional loan and since private mortgage insurance (PMI) isn’t required with VA loans, their monthly payment was over $300 less with a VA loan, compared to a conventional loan.

Conventional Loan

Purchase Price 700,000
Down Payment 70,000 (10%)
Loan Amount 630,000
Interest Rate 4.375%
Principal and Interest 3145.50
Mortgage Insurance (90% loan to value) 362.25
Total Payment 3507.75

VA Loan

Purchase Price 700,000
Down Payment 51,875 (7.41%) ($700,000 – $492,500) x .25
Loan Amount 648,125
Interest Rate 4.0% (VA rates are typically .25% to .375% lower than conventional)
Principal and Interest 3094.25
Mortgage Insurance (90% loan to value) none – VA loans to not charge mortgage insurance
Total Payment 3094.25

By financing with a 2nd tier VA loan, the Smiths enjoyed both a significant advantage in monthly cash flow and cash reserve. Like their first VA loan, the 2nd Tier VA Loan is assumable, and the funding fee may be rolled into the loan or, is waved entirely with any documented VA disability.

The background math for determining entitlements was not presented in this article. For interested parties, it can be viewed by going to the following link: http://www.moresam.net/Forum/aft/1062

Note: All applications for VA loan require a declaration by the applicant that they intend to use the home as their primary residence. Also, applicants must meet all lender underwriting credit, income and debt ration requirements.

We hope this helpful, and as always, sincerely thank you for your service. We are always happy to answer questions regarding our articles.

No responses yet

Your VA Loan Benefit: A Powerful and Flexible Financial Tool

Aug 04 2014

Published by under VA Benefits

housekeysBy Joe Gladden, Veteran Realty Serving America’s Military and
Susan Wallace, Senior Loan Officer, Access National Bank

Ten years ago, a VA loan made little sense for eligible VA loan purchasers in many of the country’s higher cost areas. Why? As home prices escalated in the hundreds of thousands, the maximum VA loan amounts with “zero down payment” were capped at $144,000. This meant that in most areas, a VA loan came with a very substantial down payment requirement. Concurrently the mortgage industry had responded by offering many conventional loans with two trusts. These products allowed most purchasers to buy a home with little to zero down, and avoid the private mortgage insurance (PMI), which dramatically reduced monthly payments.

Again…times have changed! Following the housing market collapse in the mid-2000’s, the conventional two trust loans fell out of favor and now most conventional loans require between 10-20% down. And, Congress has raised the maximum zero down loan limits for VA loans. These limits vary by county nationally. As an example in the Northern Virginia/DC region, a VA eligible home purchaser can borrow up to $692,500 with no money down.

But there are a number of other highly valuable features of the VA loan which make it the best home financing product on the market today. It is a highly flexible financial tool for VA eligible borrowers and should be considered as a key element in overall financial planning. Below is a summary of the primary features of a VA Loan:

  • Zero down financing – But, even if the contract sales price exceeds the maximum VA zero down loan limit for a specific county, the veteran does not have to make up the full difference.   And, in many cases, the amount of down payment required is substantially less than a conventional loans 10-20% down payment requirement.
    • Example:   $692,500 max zero down county limit; $800,000 contract sales price
      • With VA, buyer puts $26,875 down ($800,000 – $692,500) x .25
      • In comparison, with a 10% down conventional loan, buyer puts $80,000 down and would likely incur a substantial PMI (non-tax deductible) increase in the monthly payment.

Link to limits nationally by county (PDF).

  • A veteran can have more than one VA Loan at the same time – Really!
    • Known as a “2nd Tier VA Loan,” this little known benefit will be addressed in detail in a follow on article.
  • A VA loan is assumable. There are no assumable conventional loan products.   Those of us “mature enough” to remember the early ‘80’s know that interest rates can easily go double digit. So, when selling a home in an environment of increasing and / or high interest rates, “assuming” your VA funded loan at a lower interest rate looks far more affordable / attractive to purchasers whose alternative is to finance a home with conventional financing.
  • The funding fee for a veteran with any rated VA disability is waived for any / all VA loans, to include new loans, refinances, or 2nd Tier VA Loans which can save the veteran thousands of dollars.
    • Ex: This can save approximately $21,000 with a 3% funding fee on a $700,000 home.
    • If a funding fee is applied to a loan, the borrower generally has the option to roll that amount into the loan if desired.
  • VA Loans can be used for new construction and / or custom home builds.
  • Statutory requirements safeguard veterans for all contracts whereby the veteran chooses a VA loan, regardless of contract language. These safeguards include required:
    • Appraisal contingency
    • Finance contingency
    • Termite inspection / remediation
  • Obtaining a Certificate of Eligibility (COE) is now easier than in the past. Most lenders can access / confirm the COE on line.
  • VA appraisers may note obvious substantive defects in a home during their onsite review and can require seller correction before loan can be funded.

Note: Though unusual, sellers (including builders) can decline to sell to a buyer using VA financing. Buyers of course must meet lender credit standards and required income to debt ratios for loan approval.

The unique features of a VA Loan can be a powerful tool in your financial planning. Combined with today’s historically low interest rates, they can improve cash flow and give the VA eligible borrower the flexibility to redirect funds to retirement accounts, college bills, or in other areas that may benefit their financial planning.

We hope you find this first in a series on your VA Loan benefit helpful. Our next article will address the specifics of the 2nd Tier VA Loan.

Thank you for your service!

No responses yet

Medicare Advantage Plans

Aug 04 2014

As a Medicare/Tricare for Life (TFL) enrollee, what happens if you are notified your doctors no longer accept Medicare coverage?

You can ask family or friends where they go. You can do a www.Medicare.gov search for other Medicare providers in your area. You can start calling doctors in your neighborhood. Or your doctor may offer the option of enrolling in a Medicare Advantage plan.

Medicare Advantage plans are Medicare. The Advantage plans are also known as Medicare Part C. With an Advantage plan, the government is not your insurer as in original Medicare. A health insurance company becomes your Medicare insurer.

Medicare approves and contracts with insurance companies to offer Medicare Advantage plans. The Advantage plan becomes your Parts A and B Medicare coverage. Per Medicare, the Advantage plans must be as good as, if not better than, the original Medicare Parts A and B. Only hospice is not covered by the Advantage plans but original Medicare continues to cover this for Advantage plan members.

Medicare Advantage plans work with Tricare for Life benefits as your Medicare Parts A and B. However, coordination between TFL and an Advantage plan may not be as smooth so talk with TFL at 1-866-773-0404.

The premium amount of the Advantage plans can vary but many use your Part B premium amount as their monthly premium cost. Your Part B premium will pay the insurance company rather than Medicare. Some plans’ premiums can cost more than the Part B premium however for the extra cost they usually provide extra benefits. Advantage plans can provide extra insurance in the form of dental, vision, hearing, or health and wellness coverage. Your Advantage plan may have other costs beyond the premium so stay alert when shopping.

You must comparison shop to purchase an Advantage plan. Advantage plan availability varies by locale. The Advantage plan web site (www.medicare.gov/find-a-plan) allows you to customize the features and cost. You may find some added features worth the extra cost. Medicare supplement insurance (Medigap-Plans A through N at www.medicare.gov/supplement-other-insurance) cannot be used with an Advantage plan—shouldn’t be an issue for TFL users.

Beware, many plans provide automatic drug coverage. As TFL members, you probably won’t want drug coverage. Your Tricare pharmacy benefits are better and because extra drug coverage has to pay first, you may find yourself filing manual claims to Express Scripts to exercise your Tricare drug coverage.

This only scratches the surface. Note the timelines with getting in and out of Medicare and Advantage plans. Download the Medicare and You 2014 handbook for details or call 1-800-633-4227.

No responses yet

How the CFPB Serves YOU

Jul 21 2014

Published by under Military Benefits

EHAS_hero_landing_pageWhen it comes to making financial decisions, knowing where to get help and who to trust isn’t always easy. The Consumer Financial Protection Bureau is there for you, and they want to hear your story. Your feedback will help the CFPB protect consumers and create a fairer marketplace.

You can even check out stories from other people looking for help along their financial journey.

Watch Captain Jamison share a story about a servicemember having trouble with mortgage lenders:

No responses yet

Next »