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As Americans celebrate this Memorial Day and honor our troops, many don’t realize one of the deadliest enemies our soldiers face is right here at home. What is it? Debt – and much of it is due to predatory lending practices – not only on home loans, but for everything from cars to other types of consumer debt.
Military Families Facing Foreclosure Undermines National Security
Soldiers face a double whammy when it comes to home foreclosure and debt. Not only do they have to worry about the present, their careers are at risk also.
To explain, when a soldier is worried about bills and the roof over the heads of their loved ones back home, it can make it hard to concentrate on day-to-day duties. This can be deadly, not only for them, but for their comrades as well. This is the present threat.
The future threat is job stability. Many civilians don’t know it, but a lot of the jobs that veterans seek to advance their careers require credit checks. Not only can a soldier be denied security clearance if their credit is not good, they can be discharged and/or jailed as well. Proof?
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The Sacramento Bee article on Military.com, The Downturn: For Many in Military, Finances are a Battlefield, states:
Under military law, service members can be discharged or even jailed for running up excessive amounts of debt. And chronic debt-to-income imbalances can jeopardize their national security clearance. . . . According to a 2007 California task force report, the number of U.S. Navy discharges due to debt increased a whopping 903 percent, from 194 in 2000 to 1,999 in 2005.
The Home Foreclosure Statistics of American Military Personnel
According to the article, Military families fight battle at home against foreclosure, while many of our soldiers risk their lives abroad, many of their families are fighting a battle of their own back home – trying to prevent foreclosure. The articles states:
More than 20,000 veterans, active-duty troops and reservists who took out special government-backed mortgages lost their homes last year , the highest number since 2003.
And according to the USA Today article, 20,000 military members, vets faced foreclosure in 2010:
About 12,000 military families applied to the Pentagon’s expanded Homeowners Assistance Program. It makes up most of the difference in price for service members who must transfer and sell their homes for less than they owe, or buys their houses outright. . . . Our demand, in terms of (military) families coming to us for assistance, went up 19% in 2010 over the previous year,” says Bill Nelson, executive director of USA Cares . . .
Tips for Military Recruits on How to Avoid Foreclosure
If you’re in the service, or are thinking about going, following are some tips to help you avoid getting caught up in the home foreclosure crisis.
Delay Home Ownership: Just because you can buy a home doesn’t mean that you should. This is especially true if you’re young in your military career and/or are being moved around a lot (eg, every 2-3 years).
Don’t feel forced because of what the market is doing (eg, there are so many good deals on the market). When the time is right, the deals will still be there. Sure, they may be harder to find, but as long as you’re doing what you’re supposed to in the meantime (eg, saving, protecting your credit), you’ll be able to buy when the time is right. And, speaking of saving . . .
Get in the Habit of Saving: Learn money skills. As many of the articles linked to in this post point out, many soldiers (like most civilians) are have woefully underdeveloped money skills. So, while you have a steady paycheck and great benefits, learn how to handle money.
A big part of this is to make saving a habit. Save a percentage of everything you make. And, live within a budget; this means living below your means. If you can just do these two things, you’ll be in excellent shape to buy a home when the time is right – without fear of facing foreclosure in the future.
Save a Decent Down Payment: While you may qualify for a lower down payment with a VA loan, still save a decent down payment – at least 20 percent should be the goal. This way, you avoid having to carry private mortgage insurance (PMI), which can add hundreds per month to a mortgage payment, depending on the price of the home you eventually purchase.
Undergo Financial Counseling: If you’re returning home active duty, take advantage of the military’s “pre-separation counseling.” It offers advice on everything from financial planning to resume writing. [Source: Military.com]
Educate Yourself on Programs Available to Help You: In addition to your VA benefits, there are tons of other organizations that have programs to help vets either hold on to a home they may be in danger of losing to foreclosure and/or purchase a home.
But, you have to do some digging.
Buy Less House Than You Can Afford: When you qualify for a home loan, it doesn’t mean you HAVE to purchase a home for that amount. Many lenders expect your mortgage payment to consume no more than 30-35% of your GROSS income.
But, debt guru experts like Dave Ramsey say your mortgage (and taxes and insurance) should be no more than 25% of your NET income.
This is a big difference. For example, let’s say you gross $1,000 per week. Doing a rough calculation, a lender might say, “Oh, you qualify for a mortgage payment of $1,400 per month ($350 x 4).”
But, let’s say you net $850 per week. Using the 25 percent calculation, then your mortgage payment should be no more than $850 per month ($212.50 x 4). See the difference?
It’s always better to calculate using NET income, not gross, because Uncle Sam is going to get his cut of your paycheck, so don’t even count that money. What you should count is what’s left over after taxes are taken out. This is your NET pay. Gross doesn’t mean a hill of beans if it’s not in your bank account.
So make sure any mortgage broker you use calculates how much you qualify for based on your net income, not your gross.
Trust Your Gut: Military personnel are big targets for scammers because they know you have guaranteed income and guaranteed benefits. So, beware of scammers, ie, those who may try to get you enrolled into home loan programs or prevent foreclosure programs “just for vets that only costs a small fee.”
You don’t have to pay for any of this stuff. Never, ever trust anyone who asks you for money up front to help you stop foreclosure, get a home loan, get a mortgage modification, etc. Again, there are tons of free programs out there – through the military and through the federal government. If it doesn’t sound right or feel right in your gut – no matter how smooth talking or honest the person appears, or how good the program may sound – don’t pay any money.
Federal Regulatory Agencies to Help Stop Foreclosure
A good place to start your search if you’re trying to stop foreclosure or get a mortgage modification is the HUD website (Department of Housing and Urban Development). Here’s HUD’s prevent foreclosure program link. There’s tons of information there, and again, it’s free.
Here is a list of some other federal agencies that can help veterans prevent foreclosure.
Have Questions about Foreclosures and a VA Home Loan?
Here is a link to some commonly asked questions about foreclosure and VA home loans.
Foreclosure Scams: How to Avoid Being Ripped Off by “Foreclosure Rescue” Companies
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Stopping Foreclosure: What to Do When the Bank Refuses to Accept Your Mortgage Payments & Tries to Escalate the Home Foreclosure Process
Foreclosure Lawyer: Need One? How Not to Get Ripped Off & Choose the Best One
Foreclosure Scams: 5 Things to Look for Before Using Any Company That Promises to Help You Stop Foreclosure
Stopping Foreclosure: What the “Produce the Note” Defense Is & How It Can Help You Save Your Home from Foreclosure (Or at Least Stall)
Prevent Foreclosure Advice: Was Your Home Loan Legal? Get a Forensic Loan Audit to Find Out
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Copyright © 2011 Yuwanda Black for Foreclosure Business News. Article may not be reprinted or reproduced in any manner without the express, written consent of the author.