What is the difference between the CalVet home loan program and a standard VA loan? Is one program better for California Veterans? Is it easier to qualify for VA or CalVet? These are all common questions from Veterans living in California. Many Veterans are not familiar with the CalVet program, but those that are sometimes automatically assume the CalVet home loan program must be better. But it depends on the situation. For most California Veterans, the standard VA loan program will be the best option. But there are times when the CalVet program can get things done that VA cannot.
Veterans in California have two great home loan programs to choose from- the CalVet home loan program and the VA loan program. Both programs offer Veterans low interest rates, no down payment, and relaxed qualification standards. But there are some key differences between the two programs that you should be aware of before you decide which one is right for you. In this blog post, we will compare and contrast the CalVet and VA home loan programs so that you can make an informed decision about which program is best for you.
Differences between the CalVet and VA Loan Programs
The first difference is the CalVet home loan program is offered by the California Department of Veteran Affairs. The VA loan program is guaranteed through the Department of Veterans Affairs, but it is actually offered and funded by banks and mortgage banks. The funding for CalVet comes from the selling of voter approved Bonds. The funding for VA loans comes from Ginnie Mae Mortgage Backed Securities. CalVet posts an interest rate for each of their programs, whereas there is not a set interest rate with VA. VA interest rates can vary from one lender to the next, although should still be within a certain range based on how Ginnie Mae Mortgage Backed Securities are doing.
This leads to a big difference for California Veterans. CalVet charges a 1% Origination Fee on it's program. There are no underwriting or processing fees, but 1% can be a hefty fee in some markets. For example, a 1% Fee on a $500,000 loan is $5,000. VA offers more flexibility with loan pricing. A California VA lender can quite often offer loan options with 0 points (on a standard VA loan) or even negative points/a lender credit to offset other closing costs. If a Veteran is needing to limit or even eliminate funds to close, VA will offer more flexibility since the lender is not locked into offering only one interest rate option and charging the 1% Origination Fee.
A big difference between these two programs is how title is held by the Veteran. CalVet holds legal title to the home. CalVet uses a "contract of sale" for the home purchase. Essentially, the California Veteran identifies the property, makes the offer, and gets it under contract. A Contract of Sale is also know as a Land Contract. The Veteran holds "Equitable Title" , which means they have the right to eventually have full ownership of the home. CalVet holds legal title. With a VA loan, the California Veteran immediately receives full legal title and ownership, just like nearly all other loan program types. A Veteran using a standard VA loan can get a HELOC or refinance to pull cash out. CalVet does not allow for a 2nd mortgage and does not do refinances. For this reason, many CalVet borrowers eventually refinance into a VA loan if rates drop or if property values increase and they want to access their equity.
Similarities Between CalVet and VA
Just like VA, CalVet does use the Veterans VA Entitlement on many of its loan program. A Certificate of Eligibility will be retrieved to confirm eligibility. CalVet has program's that allow for 100% financing, but also have programs for some Veterans who may not have VA eligibility.
Which is Better: CalVet or VA?
There is no "right" answer for all Veterans. It's worth it to check into both programs. If a Veteran is purchasing a mobile home on leased land the CalVet is the way to go. If a Veteran is not eligible for a VA loan then they should check into CalVet. If a California Veteran is purchasing a farm, then check with CalVet. But if a California Veteran is looking to purchase a Single Family home or condo, or a 1 to 4 unit property they plan to live in, then check into both programs.
Authored by Tim Storm, a California VA Loan Officer