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CalVet vs VA Loan : What is the Difference?

What is the difference between the CalVet home loan program and a standard VA loan? Is one program better for California Veterans? Is it easier to qualify for VA or CalVet? These are all common questions from Veterans living in California. Many Veterans are not familiar with the CalVet program, but those that are sometimes automatically assume the CalVet home loan program must be better. But it depends on the situation. For most California Veterans, the standard VA loan program will be the best option. But there are times when the CalVet program can get things done that VA cannot.

Veterans in California have two great home loan programs to choose from- the CalVet home loan program and the VA loan program. Both programs offer Veterans low interest rates, no down payment, and relaxed qualification standards. But there are some key differences between the two programs that you should be aware of before you decide which one is right for you. In this blog post, we will compare and contrast the CalVet and VA home loan programs so that you can make an informed decision about which program is best for you.

Differences between the CalVet and VA Loan Programs

The first difference is the CalVet home loan program is offered by the California Department of Veteran Affairs. The VA loan program is guaranteed through the Department of Veterans Affairs, but it is actually offered and funded by banks and mortgage banks.  The funding for CalVet comes from the selling of voter approved Bonds. The funding for VA loans comes from Ginnie Mae Mortgage Backed Securities. CalVet posts an interest rate for each of their programs, whereas there is not a set interest rate with VA. VA interest rates can vary from one lender to the next, although should still be within a certain range based on how Ginnie Mae Mortgage Backed Securities are doing.  

va interest rate

This leads to a big difference for California Veterans. CalVet charges a 1% Origination Fee on it's program. There are no underwriting or processing fees, but 1% can be a hefty fee in some markets. For example, a 1% Fee on a $500,000 loan is $5,000. VA offers more flexibility with loan pricing. A California VA lender can quite often offer loan options with 0 points (on a standard VA loan) or even negative points/a lender credit to offset other closing costs.  If a Veteran is needing to limit or even eliminate funds to close, VA will offer more flexibility since the lender is not locked into offering only one interest rate option and charging the 1% Origination Fee.

A big difference between these two programs is how title is held by the Veteran. CalVet holds legal title to the home. CalVet uses a "contract of sale" for the home purchase. Essentially, the California Veteran identifies the property, makes the offer, and gets it under contract. A Contract of Sale is also know as a Land Contract. The Veteran holds "Equitable Title" , which means they have the right to eventually have full ownership of the home. CalVet holds legal title. With a VA loan, the California Veteran immediately receives full legal title and ownership, just like nearly all other loan program types. A Veteran using a standard VA loan can get a HELOC or refinance to pull cash out. CalVet does not allow for a 2nd mortgage and does not do refinances. For this reason, many CalVet borrowers eventually refinance into a VA loan if rates drop or if property values increase and they want to access their equity.

Similarities Between CalVet and VA

Just like VA, CalVet does use the Veterans VA Entitlement on many of its loan program. A Certificate of Eligibility will be retrieved to confirm eligibility. CalVet has program's that allow for 100% financing, but also have programs for some Veterans who may not have VA eligibility. 

Which is Better: CalVet or VA?

There is no "right" answer for all Veterans. It's worth it to check into both programs. If a Veteran is purchasing a mobile home on leased land the CalVet is the way to go. If a Veteran is not eligible for a VA loan then they should check into CalVet. If a California Veteran is purchasing a farm, then check with CalVet. But if a California Veteran is looking to purchase a Single Family home or condo, or a 1 to 4 unit property they plan to live in, then check into both programs. 

Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at Arbor Financial Group NMLS 236669. My direct line is 714-478-3049. I will prepare custom VA loan scenarios that will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process specializing in VA Loans. MLO 223456. – Please contact my office at Fairway Independent Mortgage Corporation NMLS 2289. My direct line is 714-478-3049. I will prepare custom VA loan scenarios that will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process

75 Years of VA Loan Program in California

The VA loan program is celebrating 75 years in California in 2019. In 1944, the year of the Servicemen’s Readjustment Act, or GI Bill, the VA Home Loan Benefit was born. While the GI Bill created many programs and opportunities for returning WWII Veterans, the 100% financing VA home loan program is definitely one of the best programs to come out of the GI Bill.

Interesting Facts about VA Home Loans

  • Nearly 24 million home loans have been guaranteed by the Veterans Administration
  • Nearly 82% of VA home loans are made with No Down Payment
  • Up until 2020, there has been been a 100% financing “loan limit”. In 2020 the 100% VA loan limit is going away.

Benefits of the VA Home Loan

  1. No down payment. (in 2020 there is also no limit to the purchase price for no down payment)
  2. No Private Mortgage Insurance
  3. Lower credit/FICO score requirements compared to other loan programs.
  4. Lower average interest rates compared to other loan programs.
  5. Qualify for more since no limit on debt to income ratio – VA looks at a residual income calculation.
  6. Can use VA home loan multiple times

How does VA Home Loan compare to CalVet?

The CalVet loan program is specifically for Veterans living in California. Many states have their own Veteran specific loan programs with many of them piggybacking off the VA loan program. But there are a few major differences between the VA home loan and the CalVet home loan program.

  • How title is held. This is a biggy. When you purchase a home with a VA loan, you hold immediate full title in the same manner as 99% of other loan programs allow you to hold title. CalVet uses a Contract of Sale, also known as a Land Contract. Essentially, CalVet purchases the property and then sells it to the Veteran using a Contract of Sale. The CalVet program holds legal title while the Veteran holds “Equitable Title” – or the right to obtain full ownership of the home. This distinction makes it difficult to refinance or get a home equity line of credit.
  • How interest rates are determined. CalVet is a California approved bond-funded program. Interest rates are set based on the latest bond issue, which means that at times the CalVet interest rate is higher and sometimes it is lower than VA. It seems that in most instances, especially when compares to a VA loan charging 1 point Origination Fee, which is what CalVet charges, the CalVet interest rate will be higher than VA. VA interest rates are determined based on how Mortgage-Backed Securities are trading. VA does not “set the interest rate”. But in a competitive environment, this results in aggressively low rates.
  • Flexibility with the loan pricing structure. As mentioned above, since the interest on a CalVet loan is set, there is no flexibility in structuring a loan for the Veteran. A VA loan has maximum flexibility. On any given day there is a matrix of interest rates. A Veteran can choose to take a very low interest rate and pay a 1 point Origination Fee to the lender. Or, the Veteran can choose an interest rate at 0 points to keep the fees low. Or, the Veteran can even choose a slightly higher than market rate to get a “lender credit” to cover some or all of the closing costs associated with every home purchase. It is possible to achieve a VA No No (Veteran buys a home with no down payment and no closing costs paid out of pocket) with a VA loan even if the seller refuses to pay the Veterans closing costs. With CalVet, the Veteran will need to find a seller willing to pay all closing costs, including the 1 point origination fee, if they want to purchase a home with $0 out of pocket.

The First Step is Home Loan PreApproval

The first step in the home buying process for a Veteran is to get PreApproved for the VA home loan program. You will want to see the numbers to make sure they fit in your budget. You will want to get a full understanding of what makes up the monthly mortgage payment because it’s not just principal and interest. You also need to add in the property taxes and homeowners insurance. And Homeowners Association Dues if you are buying a condo or home that sits within an HOA. You will want to see a VA Side by Side Total Cost Analysis (TCA) which will show you the numbers, including the payment and closing cost breakdowns. By having a thorough understanding of the numbers you will confidently be in a position to purchase a home. Have you ever bought a car only to realize the next day that you bit off more payment than you could handle? That is the last thing you want to happen when you are making one of the biggest purchases you will ever make.

Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at Fairway Independent Mortgage Corporation NMLS 2289. My direct line is 714-478-3049. I will prepare custom VA loan scenarios that will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

Which is better? VA Home Loan versus CalVet Home Loan

 The CalVet home loan and the VA home loan programs are the primary home financing options for California Veterans. CalVet and VA both offer Zero Down Financing, but which program is the best for California Veterans? Well, it depends. There are several factors that play into which program is best for your situation. The type of property and the purchase price, as well as your long-term plans for the property, can affect which program is your best option. There are also several differences between each program that have to be considered.

Eligibility for CalVet Home Loan versus a VA Home Loans:

CalVet and VA both have similar eligibility requirements for time served, whether it was during peace time or war time. VA is available to veterans nationwide while CalVet is only available to veterans currently living in California.

CalVet Home Loan:

When you use CalVet for your loan, the property is purchased by CalVet, who then uses a contract of sale to sell the property to the veteran. Equitable title is held by the Veteran who will be occupying the home while CalVet maintains legal title. Through this process Veterans still will have several ownership rights including property tax and mortgage interest deductions. Since CalVet will still hold the legal title, they are able to acquire a group rate for homeowner’s insurance. Since CalVet holds the legal title to your property, it can be very challenging to refinance or obtain a second mortgage in the future. Since CalVet doesn’t refinance their loans, if a Veteran wants to take advantage of lower rates or pull cash out based on increased equity, they will have to refinance out of the CalVet loan. CalVet does serve a niche when it comes to manufactured and/or mobil homes, especially when they are located on leased land. CalVet is the best is the option if the manufactured home is on leased land.

VA Home Loan:

The veteran receives full ownership rights and legal title when using a VA loan, just like most other types of home loan programs. The VA loan program is also much more flexible when it comes to occupying the property. With a VA loan the veteran must initially occupy the property, but after a few years they are able to live elsewhere and rent out the property. With the CalVet program, the Veteran is required to occupy the purchased property as the primary residence until the loan is fully repaid. Another benefit is that VA loans are much easier to refinance. VA also offers the Interest Rate Reduction Refinance Loan (IRRRL), which allows veterans to refinance their loan to lower their interest rate and payment without a new appraisal and without needing to supply income documentation. While a VA loan does allow for financing of manufactured homes there are not many lenders who will fund a VA loan on a manufactured home, especially if it is on leased land.

County VA Loan Limits and Loan Entitlements:

The size of your needed loan will play into which program better suits your needs based on which county you live in.  In Orange and Los Angeles counties the current VA loan limit is $679,650 whereas in Riverside County the current loan limit is $453,100. (based on 2018 loan limits for 100% financing) It is also possible to get a Jumbo VA loan that is above the county $0 down loan limit by coming in with a down payment. It is not unusual to have a Jumbo VA loan in the $800,000 to $1,000,000 range. Understanding your options is critical. Make sure to research both VA and CalVet to make sure you are choosing the right loan program for your needs. And for a detailed loan scenario and video presentation of the loan scenario, contact Tim Storm directly Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.CaliforniaVALoanExpert.com.com. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process. va loan application

Differences Between Standard VA Loan and CalVet for California Veterans

California is unique in that not only can a Veteran use the standard VA loan program for purchasing a home with no down payment, but can also take advantage of the CalVet loan program. But there are differences between the programs which can make one program better than the other for different people. When considering the purchase of a home using your VA eligibility, it is important to learn the differences and determine which program is better for your individual situation.

Differences to Consider Between CalVet and VA

There are several things to consider. Below is a list of a few of them.

  • CalVet used the Contract of Sale as its primary financing instrument. VA, like most loan programs (FHA, Conventional, etc) use standard Deed of Trust and Mortgage. With a Contract of Sale Calvet actually purchases the property and then sells to the Veteran along the financing. When the loan is paid off, the Deed is transferred using a Grant Deed.
  • Owner Occupancy – While both VA and CalVet require the Veteran to occupy the property after the close of escrow, CalVet has strict guidelines about the Veteran living in the property as a Primary Residence until the loan is paid off. VA requires occupancy initially, but if the Veteran decides to move a few years later and rent their home, that is allowable. More flexibility with the VA program.
  • California VA Loan limits. The VA loan limits for 100% financing change annually. They also vary depending on the county you are purchasing in. For example, Riverside and San Bernardino max out at $453,100 (in 2018). But Orange and Los Angeles counties max out at $679,650 (in 2018). A Veteran looking to purchase a home in Los Angeles with zero down payment will have more flexibility with the VA loan program. But if they are looking in Riverside, they will have more flexibility with the CalVet program, at least if they are planning to purchase a home for more than $453,100.
  • Mobile Home Purchase. The CalVet program will finance mobile homes located in parks. Mobile home financing is traditionally difficult and tends to have high interest rates. VA is more restrictive with mobile home financing. So any Veterans looking to purchase a mobile home should consider the CalVet program.
  • Interest Rates. Interest rates for VA financing are based on mortgage backed securities on the open market. VA interest rates follow the market. As such, rates have been very low over the past few years. CalVet interest rates are based on the latest CalVet bond offering. There are times when CalVet interest rates are below market. But there are also times when Calvet rates are higher than the market.

It’s important to know the differences in the two programs so that when you are ready to buy a home you will choose the best loan program for you’re situation. A California VA Loan Specialist can help you by not only retrieving your Certificate of Eligibility, but also providing customized VA loan scenarios showing a complete breakdown of the purchase price, loan amount, payment, and amount needed to close. Getting PreApproved for a VA loan is required before making an offer on a home as most sellers will not even accept an offer from a non-PreApproved home buyer.

Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.