Why Refinance a CalVet Loan into a VA Home Loan?

CalVet vs VA for California VeteransWhy would someone want to refinance a CalVet home loan into a standard VA home loan? Well, there are a few reasons, the first being that it’s not possible to refinance CalVet to CalVet, since state and federal laws prevent the CalVet program from being anything other than a purchase program. But what happens when a California Veteran wants to take advantages of low interest rates or increased property values? Then it’s time to look at options outside of the CalVet home loan program.

*Updated May 1, 2021

Reasons for Refinancing from CalVet to VA

  • Interest rates drop. If interest rates improve to something lower than what a CalVet borrower currently has then a good option is to look at options for refinancing to a VA loan. There are many CalVet loans with interest rates above 3.5%.(As of this update on May 1, 2021)  VA mortgage interest rates, which follow the market and have been very low over the past few years, 2020 and 2021, is an option that could save a Veteran quite a bit of money. A cashout refinance into a VA loan can be done up to an appraised value of 90%. A VA IRRRL can go to 100% of the value, although since there is no appraisal on a VA IRRRL it doesn’t really matter what the appraised value would be.
  • Pull equity out for home improvements or debt consolidation. 2020 and 2021 has seen great price appreciation in real estate in California. For the first time in years, homeowners can use their equity to finance the home improvements they have wanted since they bought their home. It is possible to pull cash out on a VA home loan refinance up to 90% of the property’s value. Some lenders who offer VA financing but don’t specialize in it may not know how to refinance a CalVet loan. But keep looking, because there are California VA lenders who know how to handle a CalVet to VA refinance.

What about the VA IRRRL?

The VA home loan program has a great refinance option called the Interest Rate Reduction Refinance Loan, or IRRRL for short. The IRRRL is a program specifically for current VA home loan borrowers that allows them to quickly and easily refinance to take advantage of lower interest rates. While not all lenders follow VA underwriting guidelines to the letter, there are some California lenders that do. The VA IRRRL does not require an appraisal. There is no income documentation required, making it a very easy program to close, both for the lender and the borrower. Also, most lenders can close an IRRRL by using a lender credit to cover some or all of the closing costs, making this program one of the best refinance options available, as long as you currently have a VA-backed home loan. Since CalVet is not actually a VA loan but is backed by VA in most cases, it is possible to refinance using the VA IRRRL program. But the lender needs to know how to deal with how CalVet holds ownership of the property and the fact that CalVet does not use a Mortgage Note. another reason to contact a California Va Loan Specialist.

The Process of Refinancing into a VA Home Loan

Refinancing for cashout into a VA home loan is a “full income and credit” qualifying loan. Two years’ tax returns and W2’s or 1099’s are required, along with pay stubs and bank statements. Also, a clear termite report will be needed prior to funding. A VA appraisal is needed and the loan amount cannot be higher than 100% of the property value.

Find out if a CalVet Refinance Makes Sense

The first step in determining whether a CalVet refinance makes sense is to contact a California Veterans home loans specialist who can prepare custom loan scenarios with a breakdown of the new loan amount, payment, and closing costs. A refinance does not always make sense for everybody, so it’s important to talk to someone who will discuss the pro’s and con’s of a refinance.

Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. –  My direct line is 949-829-1846. 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.

Approval for VA Home Loan After a Short Sale

CalVet vs VA for California VeteransGetting a VA home loan after a short sale is fairly easy since VA does not require a wait period after the closing of the short sale. VA home loan underwriting guidelines tend to be more flexible than any other type of financing when it comes to prior derogatory credit. Of course, it is important to have re-established credit.

Re-established Credit after a Short Sale

After a major “event” like a short sale, foreclosure, or bankruptcy, it is important to make sure your credit is perfect. Having a late payment on a credit account, or a collection can make it difficult to get VA home loan approval. The underwriter will want to see that the borrower is making payments on time. Even if you think that your health insurance should have paid a medical bill (most medical collections are in the $50 to $250 range), don’t let the bill go to collections. Pay it and work on resolving the issue later. Once it becomes a collection the true cost from the overall damage to your credit and FICO score will be more than the cost of just paying the bill.

VA Home Loan Wait Periods for Major Derogatory Events

The general rule of thumb for a VA home loan after a major credit derogatory event is Two years. Two years from the time of the foreclosure or Deed in Lieu, or two from the discharge of a bankruptcy. Something to be aware of is that not all lenders follow VA guidelines to the letter. Depending on several factors, like FICO score or loan amount, some lenders will have tighter guidelines. In the mortgage industry, these tighter guidelines are known as lender “overlays”.  A typical lender overlay with VA home loan lenders is in regards to foreclosures and loan amounts greater than $453,100. $453,100 is the 100% loan limit for most of the country. In most of the country, a loan amount over $453,100 is considered a “Jumbo VA home loan”. It is a little different in California, where there several “high-cost counties”. VA will allow higher zero down loan limits in high-cost counties. For example, in Orange and Los Angeles County, the zero down loan limit is $679,650 (in 2018).  Still, many lenders have “overlays” where they require between 4 and 7 years to go by before a Veteran can get VA financing if the loan is over $453,100. Because of these lender overlays (especially this one, because it is prevalent), it important for a California Veteran to know the standard VA guidelines, and know that if one lender says “no”, to keep looking, Because there are VA home loan lenders in California who will approve your high balance or Jumbo VA home loan two years after a short sale or foreclosure.

Pre-Approval for a VA Home Loan

The most important first step in the home buying process is Pre-Approval. Getting Pre-Approved before starting the home search will save time, money, and aggravation. Also, sellers will not even accept an offer if the buyer is not Pre-Approved or at least Pre-Qualified for a VA home loan. During the pre-approval process, the California Veteran will be educated on the loan process. Income and asset documentation is proved, and custom VA loan scenarios are provided which will provide details on the purchase price the Veteran will qualify for, along with the loan amount, payment breakdown, closing costs, and prepaid expenses.

Veterans will sometimes assume that there are no closing costs associated with a VA loan, or that the seller will pay all closing costs. Well, there are definitely closing costs associated with a VA loan (just like any loan), and the seller is not required to pay the closing costs. In the current real estate market, where many areas have recently seen a resurgence, an offer requesting the seller pay all the closing costs will have a tough time getting accepted if there are multiple offers not requesting closing costs. But there are still ways for a Veteran to purchase a home with no down payment and not come up with anything out of pocket to close. The Pre-Approval will help the Veteran understand all of their options. The first step is to contact a California VA home loan lender.

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.

The VA Home Loan for California Veterans

use VA loan eligibility more than onceThe VA home loan program is an excellent program for California Veterans. California, which has one of the highest populations of Veterans in the country, also has some of the highest property values in the country. And this is one of the reasons why the VA program has been such a great benefit.  ***This article has been updated on Feb 11, 2018 based on the 2018 VA Loan Limits)

No Down Payment Required

There aren’t too many programs these days that will allow a home buyer to get into a home with no down payment. VA is one of the very few. On top of that, when you look at any other low or no down payment program, there are huge monthly costs to cover the risk to the lender. Mortgage Insurance (MI), add’s cost to the monthly payment on Conventional and FHA financing. VA does not have a monthly mortgage insurance. The savings can be $100’s per month. For example, the current MI factor for an FHA loan (at the time of the writing, Feb 11, 2018) is .85% of the loan amount, divided by 12. So if a home buyer uses FHA financing to purchase a home for $453,100, not only do they need a down payment of $15,858 (3.5% of $453,100), but they will also have a monthly mortgage insurance payment of approximately $309. (Base FHA loan of $437,241 x .85% divided by 12) Also, the mortgage insurance on the FHA loan will remain on the loan for the LIFE of the loan. VA has no monthly mortgage insurance. In this example, the California Veteran would not have needed to come up with the down payment of $15,858, and also would not have the $309 mortgage insurance payment.  In the first year alone the Veteran would save over $3,708 just in mortgage insurance.

The bottom line is this: A California Veteran should never let a loan officer or real estate agent convince them that FHA is better than VA.

FICO Score Requirements for VA Home Loan

The minimum FICO score requirements can vary from lender to lender. It is important to note that the VA home loan program is guaranteed by the Veterans Administration, but it is lenders, not VA, who actually underwrite and fund/lend the money for the loan. Not all lenders follow the official VA guidelines to a “T”. Some lenders require a minimum FICO score of 640 while some will accept 620. And some lenders will go as low as 580. The FICO score requirements can also vary based on the loan amount. Lenders will tend to be more flexible with FICO scoring for loan amounts under $453,100. But when the loan is above $453,100, then many lenders will require a higher FICO score. For example, a 640 FICO may be needed for a loan over $453,100

High Balance VA Home Loan

The High Balance VA home loan is fairly common in for California Veterans due to the high property values found in many of the counties in California. While most of the counties in the United States have a maximum loan limit of $453,100 with $0 down, California has many counties with VA home loan limits ranging from $463,000 all the way up to $679,650 in Alameda, Contra Costa, Marin, San Mateo, and San Francisco counties. Orange County and Los Angeles County each have a 100% VA financing limit of $679,650. This means that a California Veteran in Orange County can actually buy a home in Irvine (as an example) for up to $679,650 and not need a down payment. Zero Down. Almost hard to believe considering how tight the rest of the mortgage programs are right now.

Jumbo VA Home Loan

The Jumbo VA home loan is an extension of the VA home loan.  While VA sets the limits for 100% financing, it is possible to get a VA loan that is higher than the county limit. The Veteran would need to come in with a down payment equal to 25% of the difference between the 100% limit for the county and the properties purchase price. For example, a home in Orange County for $779,650 (yes, an equal $100,000 over the 2018 county limit – making it easy for example purposes) would need a down payment of $25,000, which is 25% of the difference between $679,650 and $779,650. The base VA loan would be $754,650. And when you think about it, it is amazing that a California Veteran can buy a home for $769,650 with less than 3.5% down payment and no monthly mortgage insurance.

The first step a California Veteran should take in determining if this is the program for them is to call a California VA loan specialist. The loan officer should be able to provide custom VA home loan scenarios that will show the purchase price, loan amount, payment (including principal, interest, taxes, and insurance), closing costs, and prepaid expenses. It is important that the Veteran is educated on the loan process prior to making an offer on a home. And is almost mandatory that the Veteran is Pre-Approved by the VA home loan lender prior to making an offer on a home.

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.