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