Why Use 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.
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.
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.