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.

Why VA Loan PreApproval is Important

VA Loan PreApprovalHow important is it to have your California VA mortgage financing figured out before you have an offer to buy a home accepted? I would say it is Super Important. There are a lot of moving parts when it comes to buying a home, especially with regards to the financing. If the financing does not work out then the deal will fall apart, resulting in a loss of time and money for all parties involved in the home purchase. Which is why getting PreApproved for a VA home loan prior to even beginning to make purchase offers is critical if you intend to have a smooth transaction. This is just as important for California first time home buyers as it is for the move up home buyers.

A California Veteran Home Buyer Should Know These Things Before Shopping for a Home

  1. What makes up a “mortgage” payment? Many mortgage calculators found on websites only list the principal and interest portion of the payment. But what about the property taxes, home owners insurance, mortgage insurance (if needed), home owners association dues, etc.  A home buyer trying to getting an estimate of the mortgage on a $400,000 VA loan at 4.25% ($400,000 purchase price)  may just see a payment of $1,967. But using a typical factor of 1.25% for property taxes, the monthly taxes will be $416. And home owners insurance, using a factor of .3%, would be $100 per month. And with a VA loan, an impound account for taxes and insurance is required, meaning the actual monthly mortgage payment, including principal, interest, taxes, and insurance would be $2,484. That extra $500 in payment could be a real if the home buyer already had an accepted offer.
  2. What mortgage payment are they truly comfortable with? The home buyer should create a budget in order to make sure they can truly afford the mortgage payment. And they should also think about things that are outside of the mortgage payment, especially in the first year of their home purchase. Things like new furnishings, appliances, paint, etc. Also, there are maintenance costs for a home that should be considered in the budget.
  3. How much money will be needed to close escrow? Sometimes California Veterans using the VA home loan program automatically assume that since they will not need a down payment then they won;t need any funds to buy a home.  While it is possible to buy a home with VA financing and not need any funds for closing, commonly referred to as a VA No No, this is not something that is automatic. There are still closing costs that need to be dealt with. A California VA Loan officer can provide custom detailed loan scenarios which will give a complete breakdown of the estimated closing costs and prepaid expenses that would either need to be paid by the buyer, seller, or through a lender credit (if going for a VA No No).
  4. What comprises the closing costs and what are “prepaid expenses”? Closing costs are made up of costs involved in the purchase of the home and are one time items. There lender fees, inspections, the appraisal, escrow closing fees, notary, county recording fees, title charges, home owners association transfer fees, credit report fees, etc. It is important to get an accurate estimate of these costs during the planning stages of buying a home. As a home buyer, finding out you are short to close by $3,000 is not a good feeling when you are already in escrow to buy a home. And what about “prepaid expenses?” These are “recurring” items, including mortgage interest (prepaid interest), property taxes, and insurance. An impound account will need to be set up on a VA home loan for taxes and insurance. The number of months of property taxes that will be initially deposited into the impound account depends on what month the loan is to close. At certain times of the year it may be just 2 or 3 months. But at other times of the year it could be 8 or 9 months. On a $400,000 purchase, this could be a difference in funds to close of over $2,000.

VA Loan PreApproval Answers Questions the Buyer Needs to Know

By working with a California VA loan officer at the very beginning of the home shopping process the Veteran will get the answers to questions that they need to know. And learn things that they didn’t even realize they needed to know. And of course in the current real estate market, most sellers and their listing agents will not even entertain an offer from a buyer who doesn’t have a VA loan PreApproval letter in hand. Some lenders will charge a fee for PreApproval, but there are plenty of reputable VA lenders who will do a PreApproval for free. And depending on the complexity of the loan package, PreApproval can be completed anywhere from 24 hours to a week. The first step is a quick email or call to an experienced California VA loan officer. 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.

How Do I Get PreApproved for a VA Loan in California?

Get PreApproved for VA loan in CaliforniaA VA loan pre-approval letter is a document granted by a California VA mortgage lender that states that based on preliminary information such as the potential borrower’s credit, assets, and income, that they qualify for a VA loan of a specified amount.

It is different from a pre-qualification in that some or all of the submitted information is reviewed for accuracy before the letter is issued.

Having a pre-approval letter from your California VA lender will show home sellers that you are a qualified buyer and may lead to your offer being more seriously considered.

Once you have obtained your VA loan pre-approval letter, you will then be able to begin making offers on homes you are interested in purchasing.

In order to get your California VA loan pre-approval letter, your lender may require the following:

  • At least one months pay stubs or LES (if still active duty).
  • W-2’s and Tax Returns for the past two years.
  • Two months bank statements for any/all assets.
  • Your DD 214 form (if no longer on active duty).
  • Statement of Service from S1 (if still active duty)

Your pay stub is needed to show that you are currently employed, as well as your current income. W-2 statements (for the past two years) then show how much you normally earn in a year.

If you are currently still on active duty, your Statement of Service must show a minimum of 12 months remaining on your contract.

Finally, your DD 214 form will enable your VA lender to decrease the amount of time necessary for processing your Certificate of Eligibility. Once again, this is not required, but it is generally a smart idea.

The reason why this is a smart idea is that the majority of direct lenders with the VA can put in an order for your Certificate of Eligibility, which determines whether or not you are eligible for a VA loan.

The process can be very quick as long as you turn in all these documents as soon as possible to your loan officer.

After your VA loan officer or lender has the described documents, he  can submit your information in the VA loan analysis software to determine your eligibility. The calculation that will determine your eligibility is:

(Monthly Income) – (Proposed Mortgage Payment + Insurance + Taxes + Utilities for the house + Monthly Credit Card Payments Due) = Residual Income

Residual income is the amount of money that you have after you have paid the sum of your monthly bills. The VA will use their judgment after they have calculated your residual income to decide if you will have a satisfactory amount of money left over after you have paid your bills.

The VA has established various requirements for what your minimum residual income will have to be, such as what part of the country you live in, the size of your family, how old your children are, and various other factors.

When obtaining VA pre-approval letter, be aware that simply getting the letter does not commit the lender to giving you a loan. It just means the initial information has been reviewed. In order for the mortgage application to be approved additional information and documentation about both the borrower(s) and the property must be reviewed to be sure that all of the guidelines are met.

For more information on getting PreApproved for a VA loan in California, be sure to contact a local lender who can prepare custom loan scenarios based on your goals and qualifications.

Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.OrangeCountyVALoans.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.