The 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.
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.
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.