It’s Getting Easier to get a VA Loan offer accepted in Orange County, CA

It's getting easier to get a VA Loan offer accepted in Orange County, CA. The last few years have been tough for home buyers using VA financing. Even though VA is a very easy loan to close, at least for lender who specialize in VA financing, sellers have always shied away from VA buyers. The reason vary and are mostly due to misinformation, old information, and "myths" about the VA loan program. But what made it even harder for VA buyers since the beginning of COVID was the extreme shortage of homes for sale.

Inventory levels have increased, but still have a ways to go.

Supply Shortage = Extreme Sellers Market

When COVID started in early 2020 the real estate market had slowed down. Home buyers and sellers put their plans on hold. Sellers didn't want people walking through their home and buyers were facing their own disruptions. Within months things changed. Employers allowed their employees to work from anywhere. Demand from homebuyers increased quickly, but with very little supply on the market home prices began to rise quickly. To complicate things even more, mortgage rates dropped to record levels, making home financing cheap. This just added more buyers to compete for a limited supply of home. I've heard the real estate market during this period called an Extreme Sellers Market and a Insane Sellers Market. In Orange County and the rest of southern California (and the whole US) there were anywhere from 20 to 40 or more offers on every home. It didn't matter if the home needed work or was in a poor location. Everything sold quickly and for more than the listed price. 

In a normal balanced market the listing price is what the seller is hoping to get for tor the sale of their home. They may get a few offers under or above the listing price and after some negotiations they may even help pay some of the buyers closing costs. But during the Extreme Seller Market of 2020 and 2021 the list price was more of a starting point. A floor price. Bidding wars ensued. The buyers that had the best shot at winning a bidding war were those with a big down payment or even just straight cash buyers. These buyers could waive the appraisal, paying above the appraised value. Plus they could waive the inspections, which is crazy but is what it took in some situations.

And this is why VA buyers had a very difficult time getting an offer accepted. A VA buyer planning to take advantage of 100% financing was usually not in a position to pay more that the home would appraise. If there were 20, 30, or 40 offers, the listing agent needed to quickly eliminate the weakest offers. A 100% financing offer was considered a weak offer in this scenario. Even Veterans who had a fully underwritten PreApproval and were willing to waive the loan contingency faced the challenge of competing against offers from other buyers bidding above what the property would appraise for. 

OC Inventory levels are rising but still have ways to go.

Why is it Now Easier for VA Buyers in 2022

2022 has gotten off to an interesting start. Mortgage rates began rising immediately after the New Year. My May mortgage rates are more than 2% higher than they were in 2021. This has helped to put a damper on demand (the numbers of buyers actively looking to buy a home). Sellers are more willing to consider offers from buyers with low down payments, including VA buyers with $0 down payment. Homes are sitting on the market longer, resulting in increased inventory. There are now fewer offers to compete with. It is still a sellers market in Orange County and southern California, but it's not as bad as it was a few months ago. 

What a VA Buyer should do to be as competitive as possible

There are things that any buyer should do before they begin their home search. And especially before they make an offer. It's even more important for VA buyers to get "all of their ducks in a row". 

  1. Get a Fully Underwritten PreApproval. Each lender seems to have their own definition of what a "fully underwritten PreApproval" is. Most lenders will just have a loan officer do a quick review and run the loan through Desktop Underwriter, which is Fannie Mae's automated underwriting engine. The problem with this is if the loan officer calculates income differently from what a VA underwriter calculates, then the loan could be declined in the middle of escrow. Some lenders, like Fairway Independent Mortgage Corporation, will do a full processing of the loan. Loan Disclosures are sent out as if the VA buyer already has an accepted offer. Income and assets are documented and VERIFIED using Verification of Assets and Verification's of Income. Then the loan is submitted to an underwriter for a full review and approval. Typically a Conditional VA Loan Approval is then issued. The non-property related conditions are then cleared. This is known as the Fairway Advantage Approval Program. The Fairway Advantage take the stress out of the homebuying process.
  2. Cash Guarantee. Fairway Independent Mortgage includes a Cash Guarantee to the seller when the buyer has gone through the Fairway Advantage program. Fairway guarantees the loan will close, and on time, or Fairway will either buy the property to close the transaction or will issue the seller a $10,000 check if the seller wants to keep the property and try to sell again. The guarantee is triggered if financing falls apart due to a financing reason. For example, if the buyers loses their job in the middle of escrow and is no longer qualified to buy the home, Fairway will buy the home. If the buyer purchases a car and takes on a big payment and no longer qualifies (this would not be smart on the buyers part, but you never know) Fairway will buy the property. If the appraisal comes in low then Fairway will either buy the property for the lower of the appraised value of the purchase price. If the seller wants to put the home back on the market, Fairway will give the seller $10,000. This is Fairway Mortgage's way of getting the point across that it stands behind it's Fairway Advantage home buyers.
  3. Get a VA Purchase Analysis before making an offer. It is important to know the numbers before making an offer. The VA lender should be able to present the numbers in a clear and concise manner so that the buyer has a very accurate idea of what the full payment will be including taxes, insurance, and HOA dues. And the VA Purchase Analysis should also have a fairly accurate estimate of how much money will be needed to close escrow. Even though VA does not require a down payment, there are still closing costs and Prepaid expenses that need to be covered. Knowing how much will be needed will eliminate surprises at the closing table.

Request your FREE VA Purchase Analysis

The first step in the home purchase process is to request a Purchase Analysis. In this case, a VA Purchase Analysis. The VA Purchase Analysis will give you a clear and concise breakdown of the numbers you need to know, side by side. 

FREE VA Loan Purchase Analysis

Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at Fairway Independent Mortgage Corporation. Direct line is 949-829-1846Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at Fairway Independent Mortgage Corporation. Direct line is 949-829-1846.

What Does it take to buy a $700,000 home in Orange County with a VA Loan?

What does it take to buy a $700,000 home in Orange County with a VA Loan? The biggest hurdle for most first time home buyers is the down payment. But for Veterans eligible to use the VA loan program, the down payment hurdle is removed. VA allows Zero Down payment with no limits to the purchase price. However, there are still closing costs to contend with. And the Veteran does need to have enough income to qualify for the VA loan, along with decent credit. 

Let's take a look at what the approximate payment would be for a $700,000 home price assuming a VA interest rate of 3.5%. Interest rates can change daily, so this is just meant as a guide to the range of numbers to expect. We'll also look at the estimated funds to close and the estimated income that would be need to qualify for the VA loan.

Below is a video that will talk you through the numbers for a $700,000 purchase using a VA loan with $0 down payment.

The Payment Breakdown = PITI

Below is a screenshot of the payment breakdown for a $700,000 purchase. There are four primary components to a mortgage payment, also know as PITI.

  • P = Principal
  • I = Interest
  • T = Taxes (property taxes)
  • I = Insurance (Homeowners Insurance)

As shown below the P&I is $3,256. The property taxes are estimated to be $729. The Homeowners Insurance is estimated to be $145. The total PITI is $4,140. Also, if the property is a condo then you would need to add the Homeowners Association Dues to the over all payment. The typical HOA dues for an Orange County condo is in the $350 range. One more important fact since we're talking about condos. If you are looking to buy a condo in Orange County using the VA loan program then you will need to make sure the condo is in a "VA approved" condo complex. There are two great websites that will specifically help Veterans find VA approved condos in Orange County.

How much income is needed to qualify for a $700,000 VA home purchase?

VA guidelines require a review of the Veterans income. The Debt to Income ratio guideline for a VA loan is 41%. This means that 41% of a Veterans total income, or "Gross Income" BEFORE taxes, can go towards the housing payment AND any other installment payments and minimum payments on credit cards. Child care is also included in the expense side of the equation. If we assume a Veteran has no other payment and is trying to qualify for a $4,140 PITI mortgage payment, then their Gross Income will need to be $10,097. However, 41% is just the guideline. It is not unusual to get loan approval even when the DTI is 55%. This means it's possible the Veteran would only need $7,500 per month or $90,000 per year to qualify. But remember, if there is a car payment or other monthly payments, then the income will need to be higher.

How much money is needed to buy a $700,000 Orange County home with a VA Loan?

This is sometimes a surprise for first time VA buyers. Even though there is no down payment, there are closing costs and prepaid expenses to contend with. The escrow and title companies still need to get paid, along with the appraiser and notary. PrePaid expenses include mortgage interest, prorated and "impounded" property taxes and insurance. Altogether, the amount of money needed to close on a $700,000 purchase can easily end up being between $10,000 and $15,000, depending on several factors. There are ways to dramatically lower the amount needed to close by adjusting the interest rate or negotiating to have the seller pay closing costs. Currently we are in a Sellers Market, meaning that Sellers have the upper hand in negotiations. Getting a seller to pay for closing costs in Sellers market will be difficult. So working with an Orange County VA lender who knows who to structure and present your options will be important. 

A frequently asked question comes up about the VA Funding Fee. Veterans who have a minimum 10% service connected disability rating will not have a VA Funding Fee. Otherwise, the Funding Fee is financed into the VA loan. The amount of the fee depends on several factors, including whether it is the first usage of VA financing or "subsequent usage". Also, it the VA Funding Fee is slightly different for Reserves/National Guard. A down payment of 5% or 10% will lower the VA Funding Fee. What is important to understand is that even a 100% disabled veteran will still have the normal closing costs associated with a transaction. 

Request your FREE VA Purchase Analysis

The first step in the home purchase process is to request a Purchase Analysis. In this case, a VA Purchase Analysis. The VA Purchase Analysis will give you a clear and concise breakdown of the numbers you need to know, side by side. 

FREE VA Loan Purchase Analysis

Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at Fairway Independent Mortgage Corporation. Direct line is 949-829-1846Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at Fairway Independent Mortgage Corporation. Direct line is 949-829-1846.

Buying an Orange County, CA Home with a VA Loan in 2022

Buying a home in Orange County is super competitive in 2022 no matter what type of financing a home buyer is using for the purchase. But for those Veterans using a VA loan in Orange County to purchase a home, they will find the competition to be extra challenging. What is it that makes it more difficult to use the VA loan to buy a home versus other types of home loans?

Why are Sellers are Afraid of the VA Loan Program?

I've been closing VA loans in Orange County, CA for over 30 years. When I first got in mortgage lending the VA loan program was not widely used, since only Veterans, Active Military, and surviving spouses (in some circumstances) have access to the program. But because of how the market was in 1990, it wasn't that difficult to get an offer accepted for a Veteran using the VA loan to buy their home. Still, it was generally accepted and expected that the seller would pay for most of the Veterans closing costs and that their may be repairs required by the VA appraiser (or termite inspection) that would need to be completed prior to the closing of the loan. Back in the 90's, before the internet took hold, it took longer to close a VA loan. Retrieving the Certificate of Eligibility was hard work. More than once I personally drove from Orange County to the downtown Los Angeles VA office to file paperwork at "the window" and get the paper COE for a client. Although compliance wasn't as difficult then as it is now, VA loans just took longer to close than other types of loans. Another important restriction that got in the way of the VA loan program was the loan limit for $0 down financing.  

That was then and this is now. That VA loan limit thing made it very hard for a Veteran to buy a home in Orange County prior to 2008. In 2005 the median home price in Orange County was $719,619. The VA loan limit was was $359,650. Needless to say, there were a few years there where the VA loan program barely existed in Orange County because of high home prices. Veterans were bypassing the VA loan program altogether and instead using risky "80-20" programs, along with anyone else who wanted to buy a home with $0 down payment. After the mortgage meltdown in 2006, changes were made and the VA loan limits were dramatically increased. By 2009 the VA loan limit for $0 down financing in Orange County was $737,500. The median home price in Orange County had dropped to $544,300. This made the VA loan program more popular than ever, at least in Orange County.

VA Loan Limits removed in 2020

2020 was a huge year for the VA loan program. There were now no restrictive loan limits for 100% financing using the VA loan program. In Orange County, where the Median home price reached $950,000 in 2020, being able to buy a home with no down payment, even if the price were $1,500,000 or more, meant the VA loan program was again the best financing option for nearly any Veteran buying a home. But as the market heated up, it became more difficult to get an offer accepted from a Veteran using the VA loan. There are several reasons for this, but the most typical goes back to old, commonly held, beliefs about the difficulty in closing a VA loan. Below are a few common "myths" about the VA loan program.

  • Seller has to pay the Veterans closing costs. This is not true. Back in the day (like in 1990) it was very common for sellers to pay the VA buyers closing costs, but it wasn't mandatory. The rules for "non-allowable" costs eased and became more clear in later years. While a lender does need to be cognizant of certain fees, it's important to understand the 1% rule. Basically, fees that VA considers "non-allowable" need to be less than 1% of the loan balance. The biggest fees included in the 1% calculation include the escrow fee, notary, and lender Origination fees. Fees that are not included are Title, appraisal, recording, and discount points. The escrow fee tends to be the biggest "non-allowable" fee. The formula most escrow companies use to determine their fee does not result in anything near 1% of the loan amount, unless the purchase price is under $150,000. But that doesn't happen in Orange County, so we will rarely if ever need to worry about hitting the 1% cap. 
  • Seller has to pay repairs. This is not true. VA is just like any other type of financing when it comes to paying for repairs. While VA does require a clear termite report, it does not require the seller pay for the repairs. In a competitive real estate market, a Veteran can choose to pay for repairs. It's all negotiable. 
  • VA Appraisers are conservative.  Not true. VA appraisers are also Conventional loan appraisers. The valuation process is the same for a VA appraisal as it is for any other type of appraisal.
  • Veterans have no "skin in the game" making their offer less likely to close. This is definitely not true. The VA loan program has for years had the lowest default rate of any other loan program. And why should a seller be concerned about the percentage of down payment when they will get their money whether it comes from a VA loan or someone paying cash. If the Veteran is working with a local Orange County VA Lender and has gotten a Fully Underwritten VA Approval, their offer is as solid, if not more solid, than any other offer.
  • VA Loans take longer to close. I'll say this is not true, but there are loan officers and lenders who don't close many VA loans, which can make the processing of a VA loan challenging. For an Orange County Loan officer who specializes in VA loans, the VA program can be the easiest loan program to close. And fast. VA is more flexible than other programs when it comes to credit, debt to income ratios, and of course down payment. There are less hurdles to closing a VA loan than any other type of Conventional financing. Any lender who tells you different is not a VA specialist.

The Challenge of Buying a Home with a VA Loan in a Super Hot Sellers Market

Buying an Orange County home in 2022 is a challenge no matter what type of loan you are using. Sellers are getting anywhere from 5 to 50 offers on their homes in the first week on the market. Many times the winning bids are those who are willing to pay more than the potential appraised value, which can quickly rule out any buyers with less than 10% down. This does make it extra challenging if a VA borrower is planning on $0 down financing. So how does a Veteran in Orange County compete?

How Veterans can make a Competitive Offer in Orange County?

There are strategies that will help make a VA offer more competitive than other offers. For most of 2021 and into 2022 we have been in an extreme "sellers market" due to a big imbalance between the supply of homes available for potential home buyers and the number of buyers who want to own a home. Here is what you need to do to compete with other buyers who may be less prepared.

  • Get Fully Approved BEFORE you make an offer. This is very important. Do not wait until you've already found a home to get PreApproved. And if a lender gives you a "PreApproval" without reviewing your documentation then just know that you are NOT PreApproved. And if a lender gives you a PreApproval without verifying income or assets and having an underwriter sign off on the approval, then you are not actually PreApproved. To make sure you are fully PreApproved, you will want to go with a lender who will send your loan into an underwriter. Not many lenders will do this. Fairway Independent Mortgage Corp does a full approval, which is known as the Fairway Advantage. If you have a fully underwritten Fairway Advantage approval then you will be in position to remove the loan contingency immediately.
  • Offer a shortened inspection contingency. Buyers will use the inspection as a way to back out of a transactions. If you are serious about wanting a home then offer a short inspection time period. Get the inspections done in the first few days of escrow.
  • If possible, offer at least a partial appraisal waiver. While someone who has a large down payment may be able to waive the appraisal contingency, even someone with a minimal down payment or no down payment can potentially set a "floor" for the appraised value. For example, let's say the offer price is $710,000 but the potential appraised value is $700,000. Maybe even lower. If the Veteran has $10,000 available then they could adjust their offer to allow for an appraisal as low as $700,000 even though their purchase price will be $710,000. If the appraisal comes in at $690,000 then the buyer still has an "out" since it was not a full appraisal waiver. This is also known as an appraisal gap strategy.
  • Allow the seller to "rent back" for free up to 60 days after closing. This can put your offer at the top of the pile. The seller is going to be a buyer on their next home and will be dealing with the same hot market that you are dealing with. They may not have a new home lined up yet. By offering a seller "rent back" for free or a minimal dollar amount it will allow the seller to make non-contingent offers and potentially close very fast on their next purchase. I've had several VA clients who have used this strategy to get their offer accepted. The maximum time period for a rent back is 60 days since that is the time period allowed before the buyer has to move into the home to meet the "owner occupancy" requirement for a VA loan. This is true of any Conventional loan where the home is a Primary residence.

Buy your Home Before Values go Higher in 2022

Property values are expected to increase in 2022 by between 5% and 9% depending on who you are listening to. This means that a home valued at $700,000 today will be valued at $735,000 - $763,000 in 12 months, Why wait? Find out what the numbers look like for your potential purchase using the VA loan program. Have us prepare a VA Purchase Analysis based on what you qualify for, what your payment comfort level is, and what fit's in your budget.

Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at Fairway Independent Mortgage Corporation. Direct line is 949-829-1846Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at Fairway Independent Mortgage Corporation. Direct line is 949-829-1846.

Orange County Real Estate Values and Supply and Demand

The real estate market is going through some changes that are affecting buyers and sellers, but experts say one thing remains constant: purchasing a home still makes sense.  Rapidly rising housing prices has pushed many prospective homeowners back onto the fence. Typical among first time buyers, rising prices puts them on the sidelines until their next rent increase. Eventually they realize that they just need to bite the bullet and buy a home, especially while interest rates are still low.

However, demand isn’t the real issue. Instead, it’s the lack of supply (homes available for sale). An article from the Wall Street Journal shows this is true for new home construction:

Home builders have sold more homes than they can build. Now they are limiting their sales in an effort to catch up.”

If the slowdown in sales was the result of demand waning, we would start to see home prices beginning to moderate – but this isn’t the case. As Mark Fleming, Chief Economist for First Americanexplains:

“There’s a lot of conversation around rising prices and falling quantity in the housing market, and there’s this concept, or this idea, that it’s a demand-side problem . . . . But, if demand were falling dramatically, we would actually see less price pressure, less home price growth.”

Instead, we’re seeing price appreciation accelerate throughout this year, as evidenced by the year-over-year percentage increases reported by CoreLogic:

  • January: 10%
  • February: 10.4%
  • March: 11.3%
  • April: 13%
  • May: 15.4%
  • June: 17.2%

(July numbers are not yet available)

There’s a shortage of listings, not buyers, and there are three very good reasons for purchasers to still be interested in buying a home this year.

1. Is Affordability really a problem right now?

While many people say that affordability is a problem, it's really not a problem for most home buyers. Interest rates have remained low through 2021 which has helped affordability. Even with the increase in property value since the beginning of 2020, mortgage payments are more affordable now that at almost any time since 1990. 

In the Long Run, Owning is Better for your Net Worth than Renting

2. Interest rates are still low. But what about next year?

Interest rates have remained extremely low since COVID took hold in early 2020. But now, as we enter the 4th Quarter of 2022, the Federal Reserves has plans to begin raising short term rates. And more importantly for long term mortgage rates, the Fed will begin "tapering" their purchases of Mortgage Backed Securities. Tapering is bad for mortgage rates. Inflation, which is another concern, is also bad for mortgage rates. As the economy recovers from the effects of COVID and the supply chain problems persist, inflation will be a concern. The Mortgage Bankers Association predicts mortgage rates will rise to 4% by the end of 2022. The MBA expects the average 30 year rate in 2021 to end up being 3.1%. On a $500,000 loan amount that difference in interest rate is equal to a $252 payment difference. That payment difference is roughly $50,000 in purchasing power. Why wait?

3. Home Price Appreciation forecast is 7.9%

Even with interest rates expected to rise, homes prices are still expected to appreciate by 7.9% in 2022 according to Fannie Mae. Even though the media has been reporting a slow down in home sales it's important to understand that a slowdown in sales is not the same thing as a drop in real estate prices. Zillow expects prices to increase 11.7% over the next 12 months. The California Association of Realtors expects the median home price in California to increase 5.2%. 

Cost of Waiting

The Cost of Waiting is a calculation that compares buying a home today versus waiting and buying at a later date. The reasons for waiting include wanting to save more down payment, paying off debt, improving credit and FICO scores, or just waiting out the market and waiting to see if there is a "crash". Let's assume you are looking to buy a home for $600,000.You have 5% down but want to save another 5% before buying a home. So you have $30,000 and feel the need to save another $30,000 so that your Private Mortgage Insurance is cheaper. The total PITI would be in the $3,300 range with a 5% down payment and assuming Fannie Mae's average rate of 3.1% for 2021. The loan amount would be $570,000.  In 12 months you would have paid the balance down to $558,296 and your property would be worth $632,000. You would have $73,000 in equity in the home. 

But if you waited 12 months so that you would have 20% down then this is what that would look like. The home you're buying is now $632,000. 10% down gives you a loan amount of $568,800. The PMI would be less since we are now assuming a 10% down payment, but interest rates are higher using the 4% forecast from Fannie Mae. The total PITI ends up being $3,495.

By waiting 12 months, the mortgage payment is $195 higher. There is 10% less equity. You paid another year of rent. And you're stuck for a 4% interest rate. It's also interesting to consider what would happen if property values did drop 10% but interest rates were at 4%. If the $600,000 property was bought for $540,000 with 5% down in 12 months when rates are 4%, the total payment would still be $3,220. The risk in waiting to buy definitely seems to be in favor of buying now versus waiting to buy later.

VA Loan PreApproval

The most important step in the home buying process is to get PreApproved. Veterans have access to the best mortgage program out there, the VA loan program. VA allows for Zero Down Payment to "any" purchase price, as long as the Veteran has enough income to qualify for the payment. Working with an experienced VA Loan Office is critical in making sure the buyer understands the numbers and gets a solid PreApproval.

Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at Fairway Independent Mortgage Corporation. Direct line is 949-829-1846.

Which is Better for Orange County Veterans: CalVet or VA Loan

California Veterans have two great choices when it comes to Zero Down financing for a home purchase. They can either use the CalVet program or the VA loan program. But there is a difference between the programs, both in how the interest rate is calculated and the closing process. So which program is better? Because everyone’s situation is different it probably makes sense for Orange County Veterans to check into both programs. Below are are few of the primary differences.

Loan Amount Limits

It used to be that VA had limits on the purchase price allowed for $0 down financing. In some cases, those limits were less than what Calvet allowed. But in 2020 the Veterans Administration removed loan limits. Now, a Veteran can buy any priced home with $0 down payment as long as they have the verifiable income (and credit) to support the payment. 

How Title is Held: Calvet vs VA

The VA loan program is a fairly standard program when it comes to how closing and title are held. Like other programs (FHA, Fannie Mae, Freddie Mac, Jumbo, etc) when a VA loan is closed the Veteran holds legal title immediately upon closing. The VA loan is a recorded lien.

CalVet is different. With Calvet, after the Veteran identifies a property and gets an accepted offer, Calvet purchases the property. Calvet then “sells” the property to the Veteran using a contract of sale, which is also known as a Land Contract. Calvet still holds legal title to the home and the Veteran holds “equitable title”. Equitable title is the right to obtain full ownership.

The different forms of holding title may not seem like much initially, but it does add complication down the line, especially if the Veteran wants to refinance or get a Home Equity Line of Credit. More on this below.

Credit Scoring

Calvet does not have a minimum FICO score requirement. This means a Calvet loan may be a better option for an Orange County Veteran with a FICO score below 620. Technically, VA guidelines do not list a minimum FICO score requirement. But VA does not lend. VA guarantees the loan for the lender. And most VA lenders sell their VA closed loans to Ginnie Mae and so must follow what the current generally accepted FICO sore requirements are for loans being sold on the secondary market. Most VA lenders have minimum FICO sore requirements of between 580 and 620. It’s important to mention that private lenders will tend to have pricing adjustments for low FICO scores whereas Calvet does not. A Veteran with a 600 FICO score may get a lower interest rate with Calvet than VA. But every situation is different, making it important to do a thorough review of your options.

Interest Rate & Fees: CalVet vs VA

va mortgage paymentThere is not a set answer to this comparison since every situation is different. However, there is a lot more flexibility with a VA loan than with Calvet. Calvet offers a set interest rate determined by the current market for government-issued bonds. Every lender is different, but VA interest rates are mostly affected based on home Ginnie Mae Mortgage-Backed Securities are traded on the secondary market. Rates can change daily, but there is a lot of flexibility in the rate and fees that are offered to an Orange County Veteran. For example, as of today, August 17, 2021, the Calvet published 30 year fixed rate for the QMB 100% financing program is 2.75% (2.962% APR). Calvet charges a 1% Origination Fee. If an Orange County Veteran is purchasing a home in Irvine for $750,000 with $0 down payment then the Calvet Origination Fee will be $7,500. This fee is not financed into the loan. It needs to be paid out of pocket. When you add the escrow, title, recording, appraisal fees combined with “prepaid” expenses, the amount needed to close on a $750,000 purchase can get very expensive. A VA lender could offer the same rate of 2.75% (2.874% APR) but at 0 points. Better yet, if the Veteran is tight on funds to close the VA lender could offer additional options with a higher interest rate and “lender credit”. As an example, a Veteran would choose to go with an interest rate of 3.25% and get enough lender credit to cover nearly all closing costs and prepaid expenses. This flexibility allows a Veteran to buy a home without depleting all of their savings. Not all lenders have the same rates, so it makes sense to check around.

Refinancing Options

Calvet does not refinance their loans. Calvet is strictly for purchasing, construction, or home improvement loans. VA does have several refinance options.

  • VA IRRRL – Interest Rate Reduction Refinance Loan – This is for a VA backed loan to VA loan refinance. Also known as a VA Streamline Refinance, this is the easiest loan a Veteran will ever do. There is no income documentation required. No appraisal. No termite inspection. As long as the Veteran has a job (or VA Disability rating) and is current on their VA backed loan, they are eligible. This is a “no cash out” refinance. And since Calvet is, in most cases, a VA backed loan, it is possible for a Calvet borrower to refinance into a VA loan using the VA IRRRL program.
  • VA Cash Out Refinance – VA allows for cash out refinancing up to 90% of the property value. The VA loan, including the VA Funding Fee if applicable, can be 90% of the VA appraisal value. For example, if a property appraises for $700,000 then the new VA loan can be $630,000. If the loan being paid off is $500,000 then the Veteran can pull out $130,000, less the Funding Fee (if applicable) and closing costs/prepaid expenses. The cash out can be used for debt consolidation, home improvement, education, or any other purpose.

As an Orange County Veteran, what will be most important in your search for the best Veteran financing is the advice you get for a local, experienced, Veteran Loan Specialist. While no special license is required for a Loan Officer to originate a VA loan, most Loan Officer are lucky if they close one or two VA loans a year. Finding a local Orange County VA loan specialist who can answer your questions or prepare a professional presentation of your VA loan options in an easy-to-understand format is going to benefit you, the Orange County Veteran. Make sure to ask for a VA Loan Purchase Analysis or a VA Refinance Savings Analysis.

Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at Fairway Independent Mortgage Corporation. Direct line is 949-829-1846.