CalVet Home Loan versus VA Home Loan | Which is Better?

California Veterans can choose between the CalVet home loan or the VA home loan. Both programs offer Zero Down Financing. But which program is better? It depends on several factors. The type of property you are purchasing, the purchase price of the home, and your long term plans with the home. A home loan is a major decision and it is important to select the right loan program for your situation. For California Veterans, the two primary programs are the Calvet and VA home loan programs. While both programs are very similar, there are important differences to consider before selecting the best program for you.

Eligibility for a CalVet Home Loan versus a VA Home Loan:

Both programs require a period of active duty service of at least 90 days as well as a discharge status other than dishonorable. CalVet is only available to veterans and active duty military living in California, while VA is available nationwide.

CalVet Home Loan:

When using the CalVet program, the desired home is purchased by CalVet and then sold to the veteran using a contract of sale. CalVet holds legal title, while equitable title is given to the veteran occupying the property. This process still gives veterans several ownership rights including property tax and mortgage interest deductions. Since CalVet holds the legal title, they can obtain a lower group rate for homeowner’s insurance. With CalVet holding legal title to your property, it can make it difficult to refinance or obtain a second mortgage in the future. CalVet does not refinance their loans, so if a Veteran wishes to takes advantage of lower rates or pull cash out based on increased equity, they will need to refinance out of the CalVet loan. The CalVet loan program is very flexible when it comes to purchasing manufactured homes, and is the better option if the manufactured home is on leased land.Orange County Veterans, home buyer

VA Home Loan:

With a VA loan, the veteran receives full ownership rights and legal title to the property, just like most other types of home loan programs. VA also allows for more flexibility in terms of occupying the property. With a VA loan the veteran must initially occupy the property, but after a few years they are able to live elsewhere and rent out the property. Compared to CalVet, which requires the purchased property to be the primary residence until the loan is fully repaid. Also, VA loans are much easier to refinance. VA offers the Interest Rate Reduction Refinance Loan (IRRRL), which allows the Veteran to refinance their loan to lower their interest rate and payment without doing a new appraisal and without supplying income documentation.  Also, while the VA loan program does allow for financing of manufactured homes there are not many lenders who will fund a VA loan on a manufactured home, especially if it is on leased land.

County VA Loan Limits and Loan Entitlements:

The size of the loan you need will likely influence which program better suits your needs based on which county you live in.  In Orange and Los Angeles counties the current VA loan limit is $625,500 whereas in Riverside County the current loan limit is $417,000. It is even possible to get a Jumbo VA loan that is above the county $0 down loan limit by coming in with a down payment. VA loans in the $800,000 to $1,000,000 range are not unusual.

Understanding your options are very important. Make sure to research both VA and CalVet to make sure you are choosing the right loan program for your needs.

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

Orange County Home Sellers Who Don’t Accept Offers from VA Buyers are Losing Money

Home Sellers are losing moneywhen theyHome sellers in Orange County who don’t accept offers from VA buyers may be losing money. Not taking all offers seriously is a bad strategy in any situation, but avoiding offers from a Veteran using VA financing is just bad all the way around. There are several reasons why there is a perception that VA buyers may not make it to the closing table, but there are plenty of reasons why VA buyers actually do close, and most likely at a higher close rate than other types of loans.

Myths about the VA Loan Program

There are several myths about the VA loan program which seem to get in the way of common sense thinking. Below are a few of those myth’s.

  • Myth 1 – The seller is required to pay closing costs for the VA buyer.  This is not true. While there are certain closing costs that are known as “non-allowables”, the VA buyer is allowed in many cases to pay those costs. In the old days, which for this article we’ll say is back in the 90’s, it was common for the seller to pay closing costs for the VA buyer. At the very least they would pay the “non-allowable costs”. The Non-Allowables include the lender admin fees (underwriting, processing, etc), escrow closing, notary, and a few other smaller fees. However, if Veteran is allowed to pay up to 1% of the loan amount in “non-allowables” if there is not a 1% Loan Origination Fee. In most cases lenders do not charge a loan origination fee on VA loans. Many lenders don’t even charge a lender fee. This means there is only the escrow closing fee, which in most cases is less than 1% of the loan amount. Even better, many lenders offer VA loan options where there is a lender credit going back to the VA buyer that will cover all closing costs and prepaid expenses. Other than typical termite clearance fees, which are common on any real estate transaction, a seller shouldn’t have to pay any closing costs for the VA buyer unless they want to.
  • Myth 2 – The VA appraisal process is stringent and the valuation is conservative. This also is not true. While the VA appraisal process is a little different than for Conventional financing, the valuation process is no different than any other type of appraisal. As a matter of fact, most VA appraisers are also Conventional loan and FHA appraisers. They will be looking at the same sales comparables and making the same adjustments no matter what type of appraisal they are doing. A VA appraiser will be looking for safety issues with the property (FHA does this as well). So if there are holes in the floor, loose wires hanging from sockets, broken windows, or peeling lead based paint, then the VA appraiser may call that out and require repairs. However, most buyers using any type of financing will have a Home Inspection Report completed, which would be calling out the same repairs. This should not be a concern.
  • Myth 3 – The VA buyer has no “skin in the game”, making their offer weak.  This couldn’t be further from the truth. An interesting fact about the VA loan program is that it has the lowest default rate of any type of loan program, even though there is no down payment required in most cases. Veterans have character and have proven that they will stay within their budget and meet their obligations.In most cases, the VA buyer should have been Prequalified or PreApproved before making the offer on the home. The seller is going to get paid whether the Veteran buys the home with all cash or uses 100% financing. (I recently had a Veteran in Orange County make an offer on a home in the $600,000 price range. It would have been a 30 day escrow. The seller ignored the offer and accepted an offer with Conventional financing that was $10,000 under the VA buyers offer. Thus, this article.)

There was recently a great article in the LA Times titled “Sellers who ignore VA buyers are missing out” which makes several strong points about why sellers should take an offer from a VA buyer seriously.

The Truth About VA Loans in Orange County, CA

The truth is that the VA loan program in Orange County is very strong. The 2015 VA loan limit for Orange County is $625,500. This means an Orange County Veteran can purchase a home with no down payment up to that amount. But it is also possible to get a Jumbo VA Loan, which is what happens when a Veteran purchases a home with VA financing that is higher than the VA loan limit for 100% financing. Many local Orange County, CA VA lenders will lend as high as $1,500,000 on a VA loan. There is a down payment required, but not much. The down payment is equal to 25% of the difference between the $625,500 loan limit and the purchase price. For example, if a Veteran is buying a home for $825,500 (and even $200,000 above the limit) then the down payment would be $50,000 and the VA loan would be $775,500. That works out to only 6% down payment for the Veteran on an $825,500 price. Along with the other benefits to the Veteran of having no monthly mortgage insurance, competitive 30 year fixed rates, flexible qualifying when it comes to credit and debt to income ratios,this makes the VA loan program an excellent option for both the VA buyer and the seller.

The first step for the VA Buyer is to talk to an Orange County VA loan specialist who can prepare custom loan scenarios based on the Veterans long and short term financial goals. A VA specialist should be able to educate the buyer on how the numbers work and how it will fit in to their budget. By the time a VA Buyer is ready to make an offer on a home they should already know all they need to know about the financing.

 

Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Emery Financial. Direct line at 949-640-3102. www.OrangeCountyVALoans.com. I 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.

What FICO Score is Required for a VA Loan?

A common question by Orange County veterans interested in using VA financing to purchase or refinance a home is “what is the minimum FICO required?” The answer to this question can vary from lender to lender. Many lenders require a minimum of 620. But there are lenders who will allow FICO scores as low as 580 or lower.

Minimum FICO Scoring Tied to Loan Amount and Purposerefinance to va loan

VA lenders may  adjust the minimum FICO score depending on the loan amount and purpose of the loan. For example, many lenders will allow a minimum FICO of 620 only when it is a purchase loan and the loan amount is $453,100 or less. A loan amount greater than $453,100, which is considered a “high balance” is common in Orange County, may require a minimum FICO of 640. A refinance may have a different set of requirements. A refinance of a Conventional loan to a VA loan where the loan amount is less than $453,100 may require a FICO score of at least 640, while VA loans greater than $453,100 require a minimum FICO of 660. The VA loan limit for 100% financing in Orange County in 2018 is $679,650. Loan amounts above $679,650 are possible but would require some equity or down payment. A VA loan above the county limits for 100% financing is considered a “Jumbo VA Loan.”

Other VA Loan Credit Requirements

Overall, VA is one of the most flexible loan programs when it comes to credit. A Veteran can get a $0 down VA loan in Orange County only two years after a bankruptcy or foreclosure. Most loan programs require at least 4 fours seasoning after a foreclosure, if not closer to 7 years. And more down payment. But with VA, the 2 year requirement makes it a very flexible program. There is no seasoning requirement for a short sale.

How is the FICO Score Determined

FICO, which is the acronym for Fair Isaac Company, is a program which is used by the credit bureaus to determine a borrowers creditworthiness. There are different versions of FICO depending on what a person is financing. The FICO score shown on a credit report at a car dealership will be different than the FICO score pulled by a lender. There are different factors that a home lender deems to be important versus what a car lender will think is important. Also, there are other types of scores that are readily available to consumers, including the Vantage Score. However, the only way to get your actual FICO score that a mortgage lender will see if to go to a mortgage lender.

Get PreApproved for a VA Loan

One of the biggest reasons why it is so important to get PreApproved for a VA loan prior to searching for a home is because of the credit report. Even the best borrowers can sometimes have a surprise on their credit report. Finding this out and clearing any credit report errors prior to finding the home of your dreams is important if the closing is to be a smooth transaction. This is why the first step for a Veteran in Orange County who is thinking of using VA financing to buy a home should always be to call a local Orange County VA lender.

Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Home Point Financial (NMLS 7706). Direct line at 949-640-3102. www.OrangeCountyVALoans.com

VA Refinancing Options For Eligible Orange County, CA Homeowners

Orange County VA Loan ApprovalVA mortgage loans allow eligible Orange County Veterans to refinance their home to take advantage of lower interest rates that can ultimately save you sizable sums of money in both the long-run and the short-run by lowering your monthly payment. What many don’t realize is that the current loan does not need to be a VA loan.

Many Orange County home owners are finding that if they currently have a Conventional loan, they can refinance into a VA loan if you are an eligible veteran or member of the armed services. Transferring from a Conventional mortgage to a VA mortgage is known as a “Conventional to VA Refinance Loan” and is a very straightforward process. Technically, VA considers a refinance from a non-VA loan into a VA loan to be “cash out”, even if the borrower is not getting cash back. And while many lenders will only allow a Conventional to VA refinance up to 90% of the properties value, there are lenders who closely follow VA guidelines and allow for 100% loan to value financing. In Orange County, where the VA 100% financing limit in 2013 is $668,750, this opens a lot of possibilities. And don’t forget, many lenders will finance up to a $1,500,000 VA loan. Some equity is required when the loan is greater than the 100% limit, but not as much as would be required for a “Jumbo” Conventional loan.

The “Conventional to VA Refinance Loan” process is described in detail in our article Can I Qualify For A VA Refinance If I Currently Have A Conventional Loan?

A common question related to VA refinancing is whether or not you combine a Conventional 1st mortgage with an equity line or fixed rate second mortgage. The answer is…you can! Even if the 2nd is greater than 100% of the properties value it is still possible to combine a portion of the equity line with the first mortgage and “subordinate” the remaining 2nd mortgage. There are loan to value restrictions in this scenario, typically capping out at 115% of the properties value.

VA IRRRL for Orange County Homeowners

Of course, you are also allowed to refinance your home if you currently have a VA mortgage. An Interest Rate Reduction Refinance Loan (IRRRL) is also known as a VA Streamline Refinance.  This is a fast and easy way to lower your monthly mortgage payment and interest rate! And typically with the lender using a “lender credit” to cover some or all of the closing costs.

Some of the benefits of a VA Streamline Refinance or IRRRL include:

  • In most cases you will not need to have an appraisal prepared. This saves time and cost.
  • No income verification. Remember when you purchased your home and had to provide two years income documentation, paystubs, first born and a pint of blood.( Just kidding.)  The IRRRL program is “streamlined”, meaning its a very easy process. The lender will verify you have a job, but does not ask for income documentation. As a matter of fact, the income section of the loan application is left blank.
  • An extremely low VA Funding Fee – only 0.5%. And in many cases the lender can provide a loan scenario where even the VA Funding Fee is covered with the “lender credit.”

Consult with an Orange County, CA VA Loan Specialist

It is important to make sure to talk with a VA loan specialist. VA financing tends to be specialized.  The guidelines for VA financing are much different than for Conventional loans, and consulting with a loan officer who is not familiar with VA financing may result in answers that are not correct. So make sure you are getting the correct answers to your questions when it comes to VA financing.

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

The CalVet loan program or the standard VA loan; which is better? It all depends on when the question is being asked and where you plan to buy a home. There are several distinct advantages the standard VA loan program has as of right now, September 2011, over the CalVet loan program. The biggest factor pushing most Veterans and active duty military personnel into the standard VA loan program is interest rate. But there are differences in loan limits which can sometimes favor the CalVet program depending on the California county the Veteran is purchasing in.

Low Interest Rates Favor the VA Loan Program

2011 has been a banner year for low interest rates. In September 2011, interest rates even hit all time lows. VA 30 year fixed rates are averaging 3.75% (3.98% APR)APR to 4.25% (4.48% APR) this year. VA interest rates have been consistently low for the last several years. CalVet loan program interest rates range from 5.5% (5.9% APR) to 5.95% (6.36% APR), which is a full 1.75% spread over the standard VA loan progam interest rates. To show what that interest rate spread does to the payment, lets compare a $300,000 loan. At 4%, the payment is $1,432. At 5.5%, the payment is $1,703. That is a $271 monthly payment difference, in favor of the standard VA loan program.

VA Loan Limit in Orange County is $700,000 | CalVet is $521,250

The VA loan limit for 2011 in Orange County, CA is $700,000, meaning a Veteran can purchase a home with Zero Down in Orange County (and Los Angeles) up to a $700,000 purchase price. A Veteran can even go with a higher priced home by bringing in a small down payment. The CalVet loan program caps out at $521,250. So for Orange County homebuyers looking at properties above a $521,250 price, who are undeterred by the higher interest rate a CalVet loan has, would still go VA because of the high loan amounts allowed.

VA vs CalVet | Homeowners Insurance

One advantage CalVet does over VA is a comprehensive homeowners insurance policy, which includes guaranteed replacement for your home, even in natural disaster situations like an earthquake or flood. Private insurance companies will charge extra for this type of coverage, and “guaranteed replacement” in California is very difficult to come by.

CalVet Does not offer a Refinance Program

CalVet requires that you apply for the loan before taking title to the property. Translated, this means it is only for a purchase, not a refinance. In contrast, VA offers the IRRRL program, or Interest Rate Reduction Refinance Loan. With this program you can lower your rate (if rates drop) without needing a full appraisal and without needing to qualify. It is a very “streamlined” process. However, it is only for current VA loan borrowers. For those Veterans who wish to refinance into a VA loan from a Conventional or FHA loan, they would need an appraisal and full income documentation. But the good news is they could refinance up to 100% of the properties value.

CalVet offers home Improvement loans up to $150,000 at competitive rates, which is a nice feature. VA does not currently have a home improvement loan program. However, another option is to use the FHA 203K Rehab loan program, which can later be refinanced into a VA loan.

VA Loan Versus CalVet Loan | Which is Better?

It depends. For most Orange County Veterans, the standard VA loan program is the way to go. Lower interest rates and higher loan amounts are two benefits that are hard to ignore. But it is important to keep abreast of changes. Who knows. VA could lower the 100% financing limit in 2012. Or interest rates, which change daily, could go up for the VA program. It is important to consult with an Orange County, CA VA loan expert who can prepare custom loan scenarios based on a Veteran’s qualifications. The VA loan expert can then help the Veteran get a VA Loan PreApproval.

Authored by Tim Storm, an Orange County, CA FHA and VA Loan Officer – Please contact my office at Emery Financial for more information about an Orange County, CA home loan.  Direct:  949-829-1846   MLO 223456

www.OCFHALoans.com

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