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VA Loan Eligibility and Requirements for 2017

VA loan eligibility is more involved than, “You’ve been in the service, you’re all set.” Getting a VA home loan is a big deal — hey, buying a home always is — so you’ll have to clear some hurdles.

The Department of Veterans Affairs doesn’t issue the loans — banks, mortgage loan companies and brokers do. The VA insures a portion of the loan in case of default. Lenders like that, so they follow the requirements issued by the VA to grant the loans. But lenders can also add some stipulations of their own; that’s why it’s always a good idea to shop more than one.

The benefits of a VA home loan are substantial:

  • You’ll likely get a lower interest rate than with a conventional loan
  • You probably won’t have to make a down payment, unless you want to
  • There is no mortgage insurance requirement

Before you buy a home or condo, build a new house, or refinance or make improvements to an existing one, you’ll need to know about these VA loan eligibility and requirements.

» MORE: Best lenders for VA loans

Who is eligible for a VA home loan?

You are entitled to apply for a VA mortgage if you are active duty or separated from military service in a situation “other than dishonorable discharge,” the VA says.

Additionally:

  • Veterans must meet length-of-service requirements
  • Service members on active duty must serve for a minimum period
  • Reservists and National Guard members may be eligible
  • Surviving spouses of deceased veterans may qualify
How to obtain your Certificate of Eligibility

To tap your VA loan benefit, you will need to get a Certificate of Eligibility from the VA. Greg Nelms, VA chief of loan policy, says an applicant can get a COE in three ways:

The COE is most often obtained through a lender, Nelms says, by accessing a web-based system called WebLGY.

How to complete your Certificate of Eligibility

To complete the COE, and depending on your situation, you’ll need signed evidence of:

  • A statement of military service
  • The reason for your separation and record of service
  • Particular forms showing discharge information
  • Your surviving-spouse status
VA loan general requirements

While a VA mortgage’s qualifying requirements are more relaxed than those for a conventional loan, an applicant still needs to have decent credit and sufficient income to buy a home. And the home being financed must serve as the primary residence.

Down payment requirements

Under most circumstances, a down payment is not required. But if you decide to put some money down, it will likely reduce the VA funding fee. However, if the purchase price of the home is greater than its appraised value — or above the county loan limit (see below) — you may have to make up at least a portion of the difference.

If you’re buying in a competitive market where buyers outnumber home sellers, a down payment may be required just to get your foot in the door. A bidding situation will require a deposit for the seller, and as a portion of your down payment, it shows you are a serious buyer.

VA loan limits

The maximum VA loan guaranty limits the value of a home that can be purchased with no down payment. In 2017, a qualified borrower can generally purchase a home with a value up to $424,100 with no down payment, though the actual amount varies by county.

These guidelines mirror the single-family conforming loan limits established by the Federal Housing Finance Agency. Areas with higher-value properties have higher limits — and there are even higher value ceilings for Alaska, Hawaii, Guam and the U.S. Virgin Islands.

Property requirements

As with other government-insured home loans, the VA has stringent property requirements. Most involve a property’s safety, living conditions and compliance with building codes. Newly built homes must have certain warranties or protection plans, or be built by a veteran for his or her own occupancy, though there are additional exceptions.

Modular and manufactured homes must also meet specific requirements.

Required fees

While a VA-insured home loan carries no mortgage insurance requirement, you will be charged a funding fee. This helps the VA cover the costs of mortgage foreclosures. The amount of the fee ranges from 1.25% to 3.3% of the loan amount, depending on the down payment, how long you served and for which branch of the military and whether you’ve tapped your VA home loan benefit previously.

Many times this fee is added to the total loan amount, rather than being paid upfront. That will increase your monthly payment and the amount of interest you’ll pay during the loan term.

Veterans who receive VA disability compensation and qualified surviving spouses don’t have to pay the funding fee.

Credit score requirements

The VA doesn’t set a minimum credit score to qualify for a loan, instead requiring a lender “to review the entire loan profile to make a lending decision,” according to the VA. However, each lender you shop will have its own FICO score requirement.

VA loan debt-to-income ratio

A maximum debt-to-income ratio is also not specified by the VA. But if the total debt-to-income ratio is over 41%, lenders will need to provide proof of an applicant’s ability to repay the loan, according to Nelms. This is done by assessing your “residual income,” accounting for all your monthly living expenses, as well as what your mortgage payment will be.

Lender requirements

Lender “overlays” — or additional requirements — can be added to VA qualifications. They can range from the number of credit accounts that you have to the number of reported late payments within a specified time frame. Some lenders may require a higher credit score, or allow a lower one, too. That’s why it’s important to apply to more than one lender.

Eligibility for other VA housing programs

The U.S. Armed Forces is a diverse population, and the VA has a couple of programs to meet the housing needs of certain service members and veterans.

Special Housing Adaptation Grant

This program targets severely disabled veterans and service members. For qualified applicants with mobility issues, blindness, respiratory or other service-connected disabilities, Special Housing Adaptation grants help finance the purchase, construction or renovation of homes to meet their needs.

The program helps provide housing that can accommodate wheelchairs, as well as other accessibility improvements.

You can apply for a grant by submitting VA Form 26-4555 online, or to a regional loan center.

Native American Direct Loan

Helping Native Americans buy, build, improve or refinance homes on federally recognized trust land is the goal of the Native American Veteran Direct Loan Program. The program is available to Native American tribes, as well as Alaska Native corporations and residents of Pacific Island territories.

You will want to confirm that your native community participates in the NADL program, then ask a lender about potential benefits after you obtain your Certificate of Eligibility.

Is a VA loan right for you?

Borrowers used their VA home loan benefit to fund more than 705,000 loans in 2016. No doubt, little or no down payments, lenient credit qualifications and low mortgage rates were some of the reasons.

But no one mortgage product is right for every borrower in every situation. In addition to VA loans, other options are available to qualified borrowers, including loans with little or no down payment required.

FHA loans are one example. With down payments as low as 3.5% and the low interest rates that come with government-insured loans, FHA mortgages bear consideration. However, FHA loans require upfront and ongoing mortgage insurance premiums.

You can even get a slightly better deal than a non-veteran by using your VA Certificate of Eligibility when applying for an FHA loan.

And for borrowers with good credit, low down payment conventional mortgages are also available. Most likely, your interest rate may be a bit higher, but there’s no VA funding fee, and with enough of a down payment, you won’t have to pay mortgage insurance.

Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email: hal@nerdwallet.com. Twitter: @halmbundrick.

How to Detect Scams That Could Ruin Your Retirement

No one expects to fall victim to a financial scam, yet they happen with alarming frequency — and retirees are often in the crosshairs.  

Nearly 1 in 5 Americans over 65 have been victimized by financial rip-offs, according to a 2016 study from the Investor Protection Trust, a nonprofit investor education organization. A 2015 study by True Link Financial, an investment advisory firm, indicates seniors lose $36 billion each year to elder financial abuse.

Investment swindles come in many forms, but no matter the methods, perpetrators have their eye on one thing: your retirement savings. Here are three signs of a swindle that could rob you of your nest egg.

» MORE: Keep savings on track with NerdWallet’s retirement calculator

1. Guaranteed returns

Investing is an inherently risky endeavor, even though many people would have you believe otherwise. Bernie Madoff’s firm sold clients on the investment dream: low risk and high returns. He didn’t mention he was running one of the largest Ponzi schemes in history.

Any investment that offers a sky-high guaranteed rate of return is likely trying to deceive you about the fees and risks you’ll encounter. While it’s always important for investors to be skeptical of new ventures, it’s especially vital when promises ring too good to be true.

Ponzi schemes are a criminal fraud, but some entirely legal investments also can be problematic. Take annuities, for example, which offer a series of fixed payments in exchange for money upfront from the purchaser. Many variable annuities have high expenses, implausible guarantees and don’t make sense for everyone — including low-income individuals and people who are very old or very rich. Yet annuities still are marketed to those groups.

Annuities also are very illiquid, meaning they can’t easily be converted to cash without incurring a big loss. Chris Schaefer, a certified financial planner and head of the retirement plan practice at MV Financial in Bethesda, Maryland, says annuities are one of the most problematic investments for his clients.

“Investors are promised high income with low risk, but we often have to correct someone’s expectations,” Schaefer says. “You have to do your due diligence to understand what the associated risk is.”

2. A sense of urgency

A calling card of suspicious investments is a sense of urgency — which often proves to be false. Perpetrators want to rush investors into a decision so there’s no time for due diligence. But any sound investment that’s here today will be here tomorrow, even if the price is slightly higher.

Such scams include “hot” stock tips and “once-in-a-lifetime” opportunities, both of which usually promise exclusive information that simply doesn’t exist. Then there’s a recent example that used some real information to stir up fears about a fake problem.

A pitch making the rounds this year promised April 10 would bring a “retirement blackout” unless investors acted quickly to participate in a little-known tax haven with potentially big returns: the 26(f) program. The alleged doomsday was actually a deadline for the fiduciary rule to take effect, which was intended to benefit retirement savers. And as for that mysterious 26(f) program? It was apparently a loose reference to mutual funds.

This particular pitch was debunked by several people online, but it’s not always easy to identify a scam. Schaefer urges his clients to call him whenever they receive an opportunity that doesn’t quite add up. “It’s better to be safe than sorry,” he says.

For retirees who’ve managed their finances all along, it can be unsettling to hand over the reins late in life. That’s why it’s important to find a reputable broker or advisor, ideally one who acts as a fiduciary. The Financial Industry Regulatory Authority’s BrokerCheck is a good place to start. This free tool lets users research the backgrounds of financial brokers, advisers and firms.

“Always make sure to verify the license and registration of anyone who is handling your investments,” says Amy Nofziger, director of regional operations with the AARP Foundation.

3. Unsolicited offers

More often than not, investment opportunities appear unsolicited in your mailbox, inbox, online or by phone. The internet is rife with pitches for stocks with little public information, such as microcap or penny stocks, which are prone to fraudulent activity. In April, the U.S. Securities and Exchange Commission charged 27 people and companies with fraudulently promoting stocks online.

Nofziger warns that even seemingly legitimate events — free lunch seminars to learn about retirement planning, for example — often have a catch: a high-pressure sales pitch.

All unsolicited investment opportunities should be considered with caution, but many have an air of credibility — a fancy-looking website or links to news articles, for example. FINRA’s four-question Scam Meter will help investors identify red flags of potential schemes.

The SEC maintains a resource page that lists investments commonly marketed to seniors, including variable securities, promissory notes and ultra-short bond funds. The page also has tips for dealing with unsolicited sales calls.

» MORE: Costly financial fees you might not know you’re paying

Learning from victims

The SEC also offers resources to help retirees report investment fraud. Many people are too ashamed to admit they’ve been victimized, but their experiences can help others avoid these pitfalls.

As you approach retirement, remember the lessons you’ve learned from previous investments: Tempting shortcuts aren’t worth it; the journey requires perseverance. After years of diligent saving, don’t let one bad decision put you on the road to retirement hell.

Anna-Louise Jackson is a staff writer at NerdWallet, a personal finance website. Email: ajackson@nerdwallet.com. Twitter: @aljax7.

How to Cash In on Short-Term Rentals Like Airbnb, VRBO

You can make some serious money renting out your home if you don’t mind strangers singing in your shower. But the finances of hosting on Airbnb and VRBO can be tricky.

Before cashing in on your space, learn about the market, expenses and taxes you’ll encounter.

Think like a small-business owner

Hosts are entrepreneurs. They must rent their home legally, compete in a crowded marketplace and choose a smart listing price. Here’s how to pull that off:

Create an attractive listing

Research how to make your property stand out among local hotels and other rentals. The internet is full of guides to creating the perfect listing, and Airbnb offers a “toolkit” on the subject.

To summarize some of the most important advice: Post enticing photos. “Images are what sell properties,” says Scott Shatford, co-founder and CEO of Airdna, a service that provides rental data and analytics to hosts. “Whatever you’re writing about yourself, it doesn’t mean anything unless you have beautiful images.”

Shatford recommends landscape-oriented photos that show the space as clean, well-decorated and full of potential. “What you’re trying to sell is what you can do in an Airbnb rather than a hotel room,” he says. So make sure to include pictures of the well-stocked game room, for example, or the shops and restaurants around the corner.

Pick the most enticing shot for the primary image, the one people see when scanning local listings. “Having that one picture that makes someone click on it is really the most important thing you can do,” Shatford says.

Make sure the price is right

“A bunch of people are kind of guessing the value of their home,” says Michael Quinn, brand manager at Wheelhouse, which makes software that analyzes data and local demand to set nightly prices automatically for hosts’ rental properties. Many of the hosts he’s talked to set their prices too low in an attempt to undercut the competition. But, Quinn says, “you should be getting what your home is worth.” Plus, a cheap listing can turn off potential guests who wonder, “What’s the catch?”

Airbnb has a Smart Pricing tool, which, according to its website, “lets you set your prices to automatically go up or down based on changes in demand for listings like yours.” You can turn to tools such as Wheelhouse and Airdna to help determine the best price to list. Or, set your own prices with a few tips in mind, from Shatford’s blog, rentingyourplace.com:

  • Compare your property with similar rentals in the area to gauge about how much to charge each night
  • Charge a little less than the competition until you’ve racked up a few positive reviews
  • Anticipate local events that bring in out-of-towners, such as conferences, marathons and music festivals. Hike up the nightly rate during those events
Plan to spend money

“I wish I would have known of all the expenses associated with renting a home,” says Sally Kane, who rents her West Virginia home through VRBO, Craigslist and a local rental agency. With so many guests, you’ll have to shell out more for cleaning and property upkeep than you would for one family.

“Rental properties suffer a lot of wear and tear,” Kane says. “I must frequently replace towels, linens, comforters, dishware, pots and pans, deck furniture and other items that become worn with heavy use.” She adds higher utility bills, as well as frequent cleaning and lawn services to the list of renter expenses.

Plan to pay Airbnb and VRBO, too. Airbnb charges hosts a service fee of about 3% for each reservation subtotal. The majority of hosts using VRBO choose to pay a flat rate of $399 per year, but they also have the option of paying an 8% commission per booking instead.

Document rental expenses, income for taxes

If you rent out a home for 14 days or fewer throughout the year and live there the rest of the time, the IRS doesn’t require you to pay tax on that income. Rent for more than 14 days, and it does.

You can likely deduct expenses such as those towel replacements and cleaning services. But organization is key. Alexis Sitka, who rents part of her family’s house in Fort Myers, Florida, tracks her expenses in a spreadsheet and keeps receipts in an envelope. She even has a separate bank account for Airbnb transactions.

The websites of Airbnb and VRBO suggest hiring a tax expert. The following resources may be helpful as well:

Once you’ve sorted out the money matters, you’re ready to rent and make that extra income.

You may even enjoy meeting those strangers who used all your shampoo. Sitka and her husband enjoy exchanging travel tips with their guests. “Some of the people we’ve met have become friends on social media,” she says. “It’s fun to stay in touch.”

Laura McMullen is a staff writer at NerdWallet, a personal finance website. Email: lmcmullen@nerdwallet.com. Twitter: @lauraemcmullen.

How to Shop at Whole Foods on a Budget

Whole Foods has an array of natural, organic foods that suit a variety of dietary needs and preferences, but the prices aren’t always as accommodating. However, you can have your vegan-chocolate cake and eat it, too, if you follow a few simple strategies.

Try out these money-saving tips on your next Whole Foods visit.

Budget before you buy

Plan your shopping trip before you leave home to reduce impulse purchases. Set a reasonable monthly budget for groceries and shop strategically. Take stock of the items you already have, create a list of the ones you need and stick to items priced within your budget.

Find out what’s on sale — and when

Time shopping trips around your store’s sale schedule to maximize savings. New weekly sales typically begin on Wednesdays. Each month, some stores also celebrate one-day food holidays like Pi Day and National Cookie Day with special discounts.

Check the newsroom page on the Whole Foods website for event announcements, and the flyer section for current coupons and sale information by specific location. Call your local store and ask if there are any promotions or markdowns not featured in the ads.

Stay in the loop

Some sales will pop up unexpectedly. Subscribe to the Whole Foods email newsletter and follow the company’s social media accounts to receive timely updates. Scroll to the bottom of the page to access the social media links.

» MORE: 12 ways to save on groceries

Compare competitor prices

Before heading to Whole Foods, make sure the items on your shopping list don’t cost less elsewhere. Check out Trader Joe’s, Target, or your local supermarket chain for better deals. Use a third-party app or browser extension to make quick price comparisons. Flipp gathers nearby retailers’ weekly ads and lets you search deals by item or store to help you track down the best offers.

Download the app

We recommend downloading the Whole Foods app to improve your shopping experience. It’s free to download on Apple and Android devices. With it, you’ll have coupons and sale details at your fingertips. Use it to create a shopping list and browse exclusive digital coupons. Scan the barcode on your phone at checkout and you’ll be given any applicable discounts.

Bring your own bags

Reusable grocery bags don’t just cut down on waste  — they can cut down your grocery bill, too. Some Whole Foods locations offer between a 5- and 10-cent discount on your transaction for each bag you bring. This might not seem significant upfront, but the savings add up over time. Ask if your local store participates and what its discount rate is.

Buy in bulk

If you go through products quickly or want to stock up for a future dinner party, purchase items like beverages or nuts in large quantities to keep costs down. Bulk shoppers get a 10% discount when they buy wine and other eligible items by the case. Get goods like beans and pasta from the store’s bulk containers to choose the exact amount you want without having to pay for packaging or name-brand labels.

Buy part of an item

If you’re shopping for one person or a single meal, the size of certain groceries as they come may be too large. With certain goods, you can pay for the portion you want instead of buying the whole thing. For example, if you’re making a vegetable soup and the recipe calls for half a head of cabbage, ask an employee to split a head. You don’t have to waste money buying more than you need.

» MORE: How to use coupons effectively

Do a taste test

You risk throwing money away by purchasing a new product out of curiosity, because you might not like it. Whole Foods has a generous “try before you buy” policy that lets you taste items like cheese or cookies even if you grabbed them off the shelf rather than a sample table. Ask for assistance if something in the aisle piques your interest.

Look for store-brand items

Whole Foods’ 365 Everyday Value brand items are comparable in quality and often lower in price than competitor brands. Keep your eyes peeled for packages with the 365 Everyday Value label and compare price tags to surrounding items on the shelf.

Join the rewards program

Whole Foods is testing out a pilot rewards program that gives customers digital coupons to redeem in store. At the time of this writing, it’s available in just two metro areas: Dallas and Philadelphia. If your neighborhood store is on the list, take advantage. New members automatically get 10% off their next purchase after signing up with an email address or social media account. Don’t live in either of these areas? Give it time. If the program is a success, it could expand to more stores.

Lauren Schwahn is a staff writer at NerdWallet, a personal finance website. Email: lschwahn@nerdwallet.com. Twitter: @lauren_schwahn.

Ask Brianna: How Do We Budget With a Surprise Pregnancy?

“Ask Brianna” is a column from NerdWallet for 20-somethings or anyone else starting out. I’m here to help you manage your money, find a job and pay off student loans — all the real-world stuff no one taught us how to do in college. Send your questions about postgrad life to askbrianna@nerdwallet.com.

Finding out you’re unexpectedly expecting a baby means your life — and your budget — are about to change dramatically. According to the Guttmacher Institute, 27 percent of U.S. pregnancies happen sooner — even years sooner — than the mother had planned, so you’re not the only one suddenly trying to figure out how to feed and house a tiny human.

There’s still time to prepare financially before the baby arrives, even if you have only a few months to go. Re-evaluate your money goals, get a handle on hospital expenses and trim costs. Follow this crash course in pre-baby money management so you’ll be (slightly more) ready for the brave new world of parenthood.

Reprioritize financial goals

Money is about to become an even more precious resource. If you got by with $500 or $1,000 in emergency savings before, now is the time to crank it up, aiming for three to six months’ worth of expenses. You’ll need a cash cushion if your baby requires unforeseen medical care or if one parent becomes unemployed.

In the short term, having available cash is more important than saving for your child’s college education, says Matt Becker, a certified financial planner and founder of Mom and Dad Money. You have time to save as your child gets older, and grants, scholarships and low-interest federal student loans can make up for a shortfall later on. The same goes for buying a house: Don’t feel rushed to put your savings toward a down payment if you’re renting. Saving now will help prevent credit card debt later, and you can work toward other goals once your budget has stabilized.

Plan for hospital costs

If you have health insurance, confirm which hospitals, doctors and tests are covered, and how many days in the hospital your insurer will pay for.

Hospitals charged a median amount of $17,184 for childbirth stays in 2014, according to a NerdWallet analysis of U.S. Department of Health and Human Services data. If all doctors and hospitals are in your insurance network, you can expect a bill for 10 to 40 percent of that cost. Using the 2014 data as an example, that would come to $1,718 to $6,874, depending on your plan’s deductible.

Uninsured expectant mothers below certain income thresholds may qualify for Medicaid, which covers childbirth and maternity care. Or you may be able to join your parents’ health insurance plan if you’re under 26.

Start living on less

Your income will likely decrease during the baby’s first few months. Just 12 percent of U.S. employees work at private companies that offer paid family leave, according to the U.S. Department of Labor. Only three states offer paid family leave: California, New Jersey and Rhode Island (and, starting in 2018, New York). Outside those options, if you work at a company with 50 or more workers, you can count on 12 weeks of unpaid leave under the Family Medical Leave Act.

Estimate how much more money you’ll spend once the baby arrives and how much less you’ll earn. Start saving as close to the amount of those new expenses as possible. For expectant parents, the time is now to ruthlessly triage your budget.

“They’re in a crucial needs versus wants situation,” says Roslyn Lash, a financial educator and coach at Youth Smart Financial Education Services in Winston-Salem, North Carolina.

Some new costs are nonnegotiable, such as life insurance. It will replace your income if you die, which is vital now that another person will rely on you completely. Even if you receive life insurance as an employee benefit, each parent should get an individual policy. You’ll be covered if your employer decides to end its program, Becker says.

Trim discretionary costs that aren’t high on your list of values, he says. Getting used to a tight budget isn’t easy, but at least money is something you can stockpile in advance. If only you could bank sleep the same way.

Brianna McGurran is a staff writer at NerdWallet. Email: bmcgurran@nerdwallet.com. Twitter: @briannamcscribe.

This article was written by NerdWallet and was originally published by The Associated Press.

I Got an Audit Notice From the IRS — Now What?

It’s unlikely that you’ll be audited — the IRS audits less than 1% of the tax returns it receives. If an audit notice does show up, though, tax pros say there are a few basic steps you can take to steady yourself.

Make sure you’re actually being audited

People sometimes confuse an IRS adjustment notice with one for an audit, says Seattle-based CPA Robert Loe. (You can look up the types of notices here.) Adjustment notices come, for example, when the IRS finds a math error or discrepancy between your tax return and its records, and may offer instructions and information about changes to your tax bill.

“That’s not an audit,” Loe notes.

Also, legitimate audit notices come from the IRS only in writing — not via phone, email or social media.

“If that’s the first point of contact, you can pretty much guarantee that that’s a scam,” warns Paula Deckman, a CPA at Pittsford, New York-based Bonadio Group.

Go see a pro

CPAs, enrolled agents and tax attorneys have unlimited representation rights before the IRS, which means they can represent you before the agency even if they didn’t prepare your return. They may also be able to tell you whether the audit is simple enough to handle yourself, Deckman says.

Audit hot spots There’s no surefire way to predict an audit. But when one occurs, certain issues tend to surface. Overreaching travel expenses Credit card statements posing as receipts Unsupported meals and entertainment expenses Strangely high charitable contributions, particularly noncash ones Unsubstantiated deductions for auto expenses Taxpayer claims a computer died and took the tax records with it Mismatches between reported income and income appearing on W-2s Lots of round numbers  

Professional help usually costs money, but if you used tax software to file your return, read the fine print — you might have free help coming. Some packages sell or come with audit guidance, which largely means they’ll just explain what the IRS is telling you; others sell or come with audit representation, which means they’ll speak on your behalf to the IRS.

In any case, if you get representation you’ll likely need to sign a power of attorney form so that the representative can access what he or she needs and can act on your behalf. Be sure that the power is limited to tax information and specific tax years. Your tax representative typically doesn’t need access to your medical records or other areas of your life, Deckman warns.

Start digging through the filing cabinet

Many times the IRS is interested in auditing only a part of your tax return rather than the whole thing, Loe says. “The letter will say what they want to see,” he explains.

You should keep your tax records, including supporting receipts, for at least three years. Generally that’s how far back the IRS goes for audits, unless you’ve substantially understated income, overstated expenses or fraud is involved, Loe notes.

Get ready to wait

Audits usually come in two flavors: correspondence and in-person. Correspondence audits involve mailing information and questions back and forth; in-person audits involve live visits with an IRS employee.

Correspondence audits can last several months, Deckman says. In some cases taxpayers can switch to an in-person audit.

“You can contact the correspondence unit and request that the case be sent to a local office,” she adds. “They generally don’t want to do that, but if you can, make the argument: ‘You know what, I’ve been corresponding with the people in your unit for four months and I haven’t gotten anywhere. I either need to get a supervisor to get involved, or you need to send it to the local office and I will go over and present the information again.’”

Keep your emotions in check

Don’t let feelings about the process become part of the audit, Deckman warns.

“I highly recommend to my clients that they generally refrain from communicating with the auditor,” she says. “If the auditor wants to talk to them, I can make that happen, but I will also be present, because I find that people say things that they do not understand the true meaning of. And before you know it, they’re sticking their foot in their mouth and I’m trying to get a crowbar to get it back out of there.”

Tina Orem is a staff writer at NerdWallet, a personal finance website. Email: torem@nerdwallet.com.

Budgeting for New Parents: From Day Care to College

At some point between the pregnancy test and due date, you realize: Life will never be the same. Becoming a parent should bring mostly excitement and joy, but a little bit of panic is normal, particularly when you think about the family budget.

Having a child can upend your household finances. Here is some of what you can expect and how to budget for baby and beyond.

But first, a warning: Becoming a parent will keep your finances in flux for years to come. You’re in for a challenging ride. Stay calm. When it comes to budgeting for parenthood, the keys are equal parts preparedness and flexibility.

» MORE: 15 money must-dos to handle before baby arrives

Budgeting basics still apply

Your expenses and income will both likely change when you have a child, but your budgeting approach doesn’t have to. You’re still stretching your income to cover your expenses and debts, plus savings.

If you’re new to budgeting, we recommend divvying up your income with the 50/30/20 approach:

  • 50% for needs such as household bills, minimum loan payments and expenses such as child care, diapers and formula
  • 30% for financial wants
  • 20% for savings and payments on toxic debts, such as payday loans and credit card balances

This split is a goal. You could find your needs take up much more than 50% of your income — not uncommon for many middle-income families, particularly those with a child in day care — and that’s OK. The point is that you’re tracking your spending and aiming for improvement.

This 50/30/20 budget calculator can give you a better idea of how your current budget breaks down.

Once you’ve established a spending baseline, track your progress from month to month. You can do this using one of the many budgeting tools available online, personal finance software, or a pen and pad of paper.

» MORE: Best budgeting and savings tools

Financial priorities: retirement vs. college savings

New parents are often in a rush to save for their child’s education, and that’s commendable. But this shouldn’t come at the cost of your current and future financial security. After all, you can borrow money for college, but not for retirement.

Once you have a small amount of emergency cash to cover unexpected expenses — say $500 — your financial priorities should be as follows:

  1. Retirement savings: Make sure you’re saving enough for retirement. You should ideally set aside 15% of your income, but save at least enough to qualify for the maximum employer match on your 401(k), if your workplace offers one.
  2. Toxic debt payments: Pay off debt that is hurting you. Balances on payday loans, credit cards and title loans, for example, cost you daily and prevent you from focusing on other financial priorities.
  3. Contributions to an emergency fund: Build your emergency fund from that $500 seed, aiming for enough to replace several months of income.

Once you’re making progress on these items, you can think about college savings strategies.

That being said, if your relatives are itching to help fund junior’s university years and you can afford to put aside an extra $15-$25 per month, set up a 529 plan. You can deposit the minimum required for now, and generous family members can also contribute.

» MORE: Find the best 529 plan for your family

Practice living on less

Your income will probably change after having a child, even if temporarily. One parent might take some unpaid maternity or paternity leave, or one might leave work entirely.

Practice living on this lower income in the months leading up to your due date. Sheri Conklin, a CFP and founder of Conklin Financial Planning in Florida, New York, suggests setting aside the income of the soon-to-be stay-at-home parent to get accustomed to a smaller budget and to save for child care and other upcoming expenses.

» MORE: The nuts and bolts of building a budget

Anticipate ongoing changes to expenses

Household expenses will change when your baby is born, and they’ll continue to change throughout childhood. A recent NerdWallet study found in the first year alone, the cost of raising a baby can run upward of $21,000, and the cost of raising a child to adulthood dwarfs that.

“You have a lot of expenses associated with becoming a parent, but many of them won’t last forever,” says Conklin. Formula, diapers and day care are just a few that will fall off your budget as your child grows, and costs like dance lessons and auto insurance will eventually take their place.

In the meantime:

  • Estimate the amount you’ll spend in the first year using this cost of baby calculator. Fine-tune this amount by getting quotes from local child care centers if you plan to put your baby in day care.
  • Research ways to reduce that cost:
    • Compare the cost of adding a child to all working parents’ health insurance plans
    • Buy secondhand
    • Request must-haves at your baby shower(s)
    • Shop around for child care
  • Anticipate how long these costs will last. Many costs to first-time parents are one-time expenses, including the crib and the strollers. Others continue for just a few years, such as child care until your kid goes to school.
  • Review upcoming expenses monthly when you sit down to pay your bills. You don’t want to be unprepared, so find space in your budget as best you can in advance.

» MORE: How to save money

When there just isn’t enough

Sometimes there just isn’t enough money. Cutting expenses and increasing household income are the two basic strategies for balancing your new budget, but this can be easier said than done. If you haven’t already, look closely at these options:

Like some of the increases in household expenses associated with parenting, these sacrifices can be temporary, too.

Elizabeth Renter is a staff writer at NerdWallet, a personal finance website. Email: elizabeth@nerdwallet.com. Twitter: @ElizabethRenter.

A Guide to Who Needs Life Insurance

Life insurance can fill a wide variety of needs, including covering the finite years of a mortgage and protecting the interests of a special-needs child who will need financial support after you’re gone.

In fact, although, 70% of Americans consider life insurance a necessity for themselves, 41% have no life insurance at all, according to 2017 statistics from the industry groups Life Happens and LIMRA.

Here’s a guide to who needs life insurance and what kind of policy likely works best in each situation.

Who needs life insuranceHow life insurance can helpBest option BreadwinnerLife insurance can provide “income replacement” so that your family can continue to pay everyday expenses.Term life insurance can cover your working years. Stay-at-home parentLife insurance would cover the cost of paying for services the parent does for “free,” such as child care.Term life can cover the years your kids are young. Divorced parentA policy could cover the support payments that a divorced parent makes.Term life can cover the years of support payments. Parent of a special-needs childLife insurance can make sure the child will have financial support no matter when a parent dies.Permanent life insurance provides a payout no matter when you die. Homeowners with a mortgageA policy can cover mortgage payments, so your family doesn’t have to move if you die.Term life insurance can match the years of a mortgage. Someone with co-signed debt (such as student loans or credit cards)Life insurance could cover the cost of the debt.Term life can be timed to end with the debt payments. High net worth individualLife insurance can provide funds for heirs to pay estate or inheritance taxes.Permanent life insurance is best for those with estate tax concerns. Someone who wants to provide an inheritanceIf you don't have a lot of wealth, life insurance can provide a small inheritance to heirs.Permanent life insurance will pay money for the inheritance, no matter when you die. Business ownerLife insurance can pay off business debts if you die, help heirs to the business pay off estate taxes, or fund a buy-sell agreement that allows a business partner to buy out your share.Term life or permanent life, depending on the issue to be solved. Investor who has maxed out other retirement plansLife insurance with a cash value component can provide a supplemental source of retirement savings.Permanent life insurance, which builds cash value that you can access. People concerned about paying for their own funerals.Small life insurance policies can pay for your funeral and final expenses.Permanent life, such as final expense insurance.

NerdWallet’s life insurance comparison tool can help you figure out how much coverage you need and compare rates. People who are interested in permanent life insurance should consult a financial advisor to find the right policy type.

 

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