949.640.3102

No More VA Loan Limits in 2020 for California

VA Loan Limits for most of California have tended to be higher than many parts of the country. But still, with home prices quite often higher than the local county loan limit, California Veterans were forced to come in with some down payment in many situations. Changes are coming for 2020. The 100% financing limits are going away. This will make it possible for a Veteran to buy a home at any price (theoretically) with $0 down payment.

Blue Water Navy Veterans Act of 2019

The Blue Water Veterans Navy Act of 2019 (almost sounds like something out of a Jason Bourne movie) was signed into law in June 2019 and will be effective on January 1, 2020. This law eliminates the Zero Down VA Loan Limits. It also increases the VA Funding Fee. 

Up until now (January 1 2020) VA loan limits have been tied to the FHFA limits set each year. A Veteran could buy a home with $0 down payment, but only up to the county loan limit. If the purchase price was above the loan limit then the California Veteran needed a down payment equal to 25% of the difference between the loan limit and home price. The resulting VA loan was commonly referred to as a "Jumbo VA Loan". This was still a very good deal for the Veteran and allowed for less down payment and no mortgage insurance than any other type of loan program. 

Comparing 2019 Loan Limit Purchase vs 2020 No Limit Purchase​

The 100% Financing VA Loan Limit in Orange and Los Angeles counties is $726,525 in 2019. A Veteran can buy a home up to $726,525 with no down payment. If the purchase price is $926,525, or $200,000 above the 2019 loan limit for Orange and Los Angeles counties, then the down payment required would be $50,000 (25% of the $200,000 difference) and the VA loan would be $876,525.  In 2020, a Veteran purchasing a home for $926,525, or even $1,000,000, will not need a down payment at all. This will allow the Veteran the keep more money in the bank. 

The standard "Conforming" VA loan limit in 2019 is $484,350. Riverside and San Bernardino counties have been subject to this limit even though there area many areas where homes sell above the limit. For example, a Veteran purchasing a home in Corona (in Riverside County) for $584,350 ($100,000 above the 100% limit) in 2019 would need $25,000 down payment. In 2020, they will not need a down payment. This will open up many areas of the Inland Empire and will help property values as well. 

VA Funding Fee Increase

The VA Funding Fee will be increasing in 2020 as part of the Blue Water Navy Veterans Act of 2019. The VA Funding Fee is typically financed into the loan and disbursed to VA. It is mostly used by VA to guaranty the the VA loan for the lenders who are actually closing the loans. It is important to note that VA is not a "lender" and does not fund VA loans. VA guarantees the loan as long as it is underwritten to VA guidelines. And not all mortgage companies offer the VA loan program. 

cash out VA refinance

Currently, in 2019, the VA Funding Fee for a first time VA buyer is 2.15% of the loan amount. (this can vary depending on whether the Veteran eligibility, and whether they are eligible due to time in the Reserves or National Guard, or were Active Duty). The new VA Funding Fee in 2020 will be 2.3% for 1st time users. The Funding Fee for subsequent users will be 3.6% versus the 3.3% it currently is in 2019. In 2020, the Funding Fee will be the same for all eligible Veterans, whether they were National Guard or reservists, or regular military. 

VA Funding Fee Waivers

For those Veterans with a service connected disability rating the Funding Fee is waived. And starting in 2020, active duty service members who have received a Purple Heart will also be exempt from the Funding Fee. The Funding Fee can also be reduced by putting 5% or 10% down. For a subsequent user in 2020, the VA Funding Fee can be reduced from 3.6% down to 1.65% with 5% down or 1.4% with 10% down. 

As mentioned earlier, the VA Funding Fee can be financed into the loan, meaning it will not affect the amount of money needed by the Veteran to buy a home.  But still, if a subsequent user is selling a home and will have equity from the sale for their next purchase, by putting 5% down on a $500,000 purchase the VA Funding Fee will be reduced from $18,000 down to $7,837. The resulting loan amount with 5% down ($25,000 down payment) would be $482,837. The resulting loan with $0 down would be $518,000. So with $25,000 down the loan amount difference is $35,163. The payment difference will depend on the interest rate of the loan, but could easily be between $150 and $175 per month. For a subsequent VA loan user who has the option of coming in with some down payment, that would be something to think about.

To truly know what is the best option for you, contacting a loan officer who specializes in the VA loan program is your first step.​

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 which 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

5 Financial Reasons for California Veterans to Buy a Home

5reasons

There are many reasons a California Veteran should by a home. Property values in California have fully recovered in most counties compared to values in 2008 after the “mortgage meltdown”. Mortgage underwriting standards are now much stricter than they were prior to the crash, which has helped to stabilize the real estate market., Homebuyers are still optimistic about searching for and purchasing a home. Home prices have experienced nice appreciation rates over the past few years are expected to continue that trend in 2018.There are many reasons that it makes financial sense, especially for California Veterans, to purchase a home now. Here are a few of those reasons:

  1. A home is one of the best leveraged investments currently available

When purchasing a home, the purchaser stands to potentially make significant gains on their investment. For example, say a borrower pays a 20% down payment on a $400,000 home. That is $80,000 down payment. If the value of the home they purchased rises 10% to a value of $440,000, they will have realized a 50% return on their initial investment. For every percentage point the value rises the borrower gets a 5% return on investment. If a mortgage has a smaller down payment, then the increase in ROI is even greater. In the case of a California Veteran that uses the VA program where no down payment is required, a rise in value would mean an exponentially immeasurable increase in ROI. It is, of course, important to also compare the total mortgage payment to a comparable rent payment and make sure the mortgage payment fits your budget.

  1. Whether you own or rent, you are still paying for housing

In either case, you are likely paying someone’s mortgage principal. When renting you are paying the landlords principal plus a rate of return to help cover their costs. When owning, you will be paying your own principal and moving towards paying off your mortgage. You also get much more favorable tax treatment when owning your home.

  1. Owning is a form of “forced savings”

Many individuals will delay saving money for the future due to current debt and current costs. Owning a home acts as a storage of value and can serve as a long-term asset. When purchasing a home with a mortgage, you have to pay into your home by paying off your mortgage. This is a forced savings since the money you paid to close out your mortgage is stored in the long-term value of your home.

  1. There are significant tax benefits to owning

Compared to renting, there are many more tax-related benefits if you own your home. When you own your home, you are able to deduct property taxes and mortgage interest from your income. Of course, it is always important to consult with your CPA or tax preparer to see if there will be a tax benefit for you or not. Recent tax changes may have reduced or eliminated the tax benefit of owning a home at certain price ranges. Every situation is different.

  1. Owning your home is a hedge against potential inflation

For potential homeowners with a fixed rate mortgage, their housing costs could be essentially fixed with only utility costs, insurance, and property taxes changing over time. When renting a home, rents and related costs will change over time with higher rates of inflation. The potential for future inflation provides homeowners with an attractive possibility for future savings. And in California, because of Proposition 13 (passed in 1978), property taxes are severely limited to increasing in step with inflation. Proposition 13 only allows the county to increase your properties assessed value by a maximum of 2% per year. Since 2000, the average annualized property appreciation rate in California is 5.03%. (from 1st Quarter 2000 through 3 Quarter 2017 – source https://www.neighborhoodscout.com/ca/real-estate  )  That even takes into account the downturn in 2008. Somebody who bought a home in 2000 for $300,000 is now sitting on a home valued at $708,120. But their property tax bill is not based on the estimated value of $708,120. Because of Proposition 13, the assessed value would only be $420,000. Since the property tax bill is based on the assessed value, this works as a great hedge against inflation. The base annual property tax bill would be 1% of $420,000, or $4,200. But if someone new move into the neighborhood and buy a home valued at $708,000, their base property tax bill would be $7,080. The sooner you buy a home the better. Lock in that payment before property values go higher.

It is very important to make sure you have a clear understanding of the numbers involved in purchasing a home with VA financing. You want to make sure you know your budget so that after you buy a home you are still able to save for retirement and go out to dinner now and then. To understand the numbers, call a California VA loan officer prior to shopping for a home.This should always be your first step. Similar to shopping for a car, you need to know what payment you can afford and what that payment equates to in purchase price. Your California VA Loan Officer will be able to quickly assess your situation and prepare custom VA loan scenarios for you.

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. www.CaliforniaVALoanExpert.com. 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 your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.

Differences Between Standard VA Loan and CalVet for California Veterans

California is unique in that not only can a Veteran use the standard VA loan program for purchasing a home with no down payment, but can also take advantage of the CalVet loan program. But there are differences between the programs which can make one program better than the other for different people. When considering the purchase of a home using your VA eligibility, it is important to learn the differences and determine which program is better for your individual situation.

Differences to Consider Between CalVet and VA

There are several things to consider. Below is a list of a few of them.

  • CalVet used the Contract of Sale as its primary financing instrument. VA, like most loan programs (FHA, Conventional, etc) use standard Deed of Trust and Mortgage. With a Contract of Sale Calvet actually purchases the property and then sells to the Veteran along the financing. When the loan is paid off, the Deed is transferred using a Grant Deed.
  • Owner Occupancy – While both VA and CalVet require the Veteran to occupy the property after the close of escrow, CalVet has strict guidelines about the Veteran living in the property as a Primary Residence until the loan is paid off. VA requires occupancy initially, but if the Veteran decides to move a few years later and rent their home, that is allowable. More flexibility with the VA program.
  • California VA Loan limits. The VA loan limits for 100% financing change annually. They also vary depending on the county you are purchasing in. For example, Riverside and San Bernardino max out at $453,100 (in 2018). But Orange and Los Angeles counties max out at $679,650 (in 2018). A Veteran looking to purchase a home in Los Angeles with zero down payment will have more flexibility with the VA loan program. But if they are looking in Riverside, they will have more flexibility with the CalVet program, at least if they are planning to purchase a home for more than $453,100.
  • Mobile Home Purchase. The CalVet program will finance mobile homes located in parks. Mobile home financing is traditionally difficult and tends to have high interest rates. VA is more restrictive with mobile home financing. So any Veterans looking to purchase a mobile home should consider the CalVet program.
  • Interest Rates. Interest rates for VA financing are based on mortgage backed securities on the open market. VA interest rates follow the market. As such, rates have been very low over the past few years. CalVet interest rates are based on the latest CalVet bond offering. There are times when CalVet interest rates are below market. But there are also times when Calvet rates are higher than the market.

It’s important to know the differences in the two programs so that when you are ready to buy a home you will choose the best loan program for you’re situation. A California VA Loan Specialist can help you by not only retrieving your Certificate of Eligibility, but also providing customized VA loan scenarios showing a complete breakdown of the purchase price, loan amount, payment, and amount needed to close. Getting PreApproved for a VA loan is required before making an offer on a home as most sellers will not even accept an offer from a non-PreApproved home buyer.

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.