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.

California Veterans use VA Loan Program Multiple Times

Why Use the VA Loan Program?

Multiple usages of the VA Loan Program

Not many California Veterans realize they can use their VA Entitlement to purchase a home more than one time. There is no limit to how many times the VA loan program can be used for a home purchase. And while many California Veterans think of the VA loan program as a “First Time Buyer” program, it actually has many advantages over other types of home financing even when the California Veteran plans to use a down payment for their home purchase.

FAQ on VA cashout refi
Advantage of the VA Loan Program for Californa Veterans

VA has many advantages over other types of home financing. Below are just a few of the reasons why the VA loan program is the best financing option for most California home purchases by Veterans.

  • $0 Down required up to the county loan limit (in 2019). In 2020 there will be no VA loan limit for 100% financing.
  • There is no monthly mortgage insurance. Compare this with other loan programs that allow for less than 20% down and you’ll find there is always some form of mortgage insurance, whether it is paid separately or built into the interest rate. With VA, there is no difference in interest rate between a $0 down payment transaction and a 20% down transaction.
  • Underwriting flexibility in terms of the “debt to income” ratio. VA does not have a maximum debt to income requirement, while other types of loan programs will not allow the debt to income to be higher than 43% (in the case of many Jumbo programs), 45% to 50% (in the case of typical Conventional programs, depending on down payment), and 57% (in the case of FHA, although FHA cuts the debt to income ratio off at 47% for the “front end” ratio, which is the mortgage payment divided by the income). This just means it is easier to qualify for a bigger loan with VA.
  • Underwriting flexibility in terms of credit. VA only requires a two-year wait after a bankruptcy or foreclosure. Conventional loan programs require anywhere from 3 to 5 years for bankruptcy and 5 to 7 years for a foreclosure. Also, the VA is far more flexible with FICO scoring. While Conventional interest rates are negatively affected by FICO scores below 740, the adjustments to VA interest rates tend to be minimal (if at all) down to a 660 FICO score, and still only slight down to a 620 FICO score. This can vary from one lender to the next, but it is definitely worth knowing that if your FICO score is below 680, VA will most likely be a very favorable loan program versus Conventional financing even if there is a significant down payment.
  • Very easy Refinance program –VA Interest Rate Reduction Refinance Loan (IRRRL). While not always considered a reason to use VA, it actually should be. Interest rates are always fluctuating up and down. The VA IRRRL allows current VA loan borrowers to quickly and easily take advantage of an improvement in interest rates without having to go back through the qualifying process. Also, there is no appraisal required, which helps to keep refinance fees to a minimum.  VA does require that at least 210 days have passed since the first payment due date and the new interest rate needs to be at least .5% lower than the current interest rate. Also, refinance must result in a “break-even” of the closing costs in 36 months or less. Any California Veteran who has used an alternative program to VA, like FHA or the CalVet loan program, realizes later that if they had used VA financing the first time around then the refinance would have been cheaper and easier since the VA IRRRL is only for VA to VA refinances.
VA IRRRL Streamline Refinance

All of these advantages help to explain why a California Veteran should always consider using the VA loan program for not only their first home purchase but also any future home purchase. As with any home purchase, which tends to be one of the largest investments an individual will ever make, a thorough review of the numbers should be made. Understanding not only the short term costs of the loan but also the long term costs and how those costs and monthly expenses will fit into your budget is an important step in the home buying process.

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.