VA home Loans
California
A VA loan is a home mortgage backed by the US Department of Veterans Affairs and provided by private mortgage lenders to servicemembers and their families. VA loans work to help people with military service purchase a home with flexible mortgage terms.
The VA guarantees a portion of the loan, which encourages private lenders to offer veterans more favorable terms than they might receive from conventional loans. Active-duty servicemembers, veterans with discharges other than dishonorable, and surviving spouses are eligible. The unique benefits of a VA home loan include no down payment, no private mortgage insurance (PMI) requirement, and limited closing costs.
Read on to learn more about the benefits of a VA loan over a conventional loan, the requirements to apply for a California VA loan, and find out if you are eligible.
VA Home Loan Benefit
VA loans have unique benefits designed to make homeownership achievable for members of the armed forces and eligible surviving spouses.
No Down Payment Required
Conventional loans require about 3% down, but a VA home loan usually requires no money down. As long as the home's sale price is at or below the appraised value, most lenders will waive the down payment.
This greatly benefits veterans in places like Alameda County, California. With some of the highest-priced real estate property in the country, purchasing a California home with $0 down saves a lot of money.
No Private Mortgage Insurance Premiums
Another trait of conventional loans is that borrowers who put down less than 20% of the home price must pay private mortgage insurance. This protects the lender if the borrower defaults on their loan.
However, private mortgage insurance is unnecessary in VA loans since the Department of Veterans Affairs insures the loan. The VA makes an agreement with a private lender called a VA home loan guaranty. The guaranty protects the lender in case a borrower defaults on their loan.
Competitive Interest Rates
VA loan specialists from banks, mortgage lenders, and credit unions offer competitive mortgage terms and interest rates. Thanks to the VA loan guaranty, the lender is insured 25% back on the loan if the borrower defaults. There is a lower risk for the lender to offer a VA loan, which means they charge lower interest rates.
Flexible Credit Requirements
The Department of Veterans Affairs does not require a minimum credit score for a VA loan, but lenders have individual requirements for credit to determine lending risk and interest rate. Many lenders will go as low as 500.
No Prepayment Penalties
Unlike adjustable rate programs, a California VA loan does not charge a penalty fee if you pay it off early.
Assistance for Struggling Borrowers
If you run into financial difficulties and cannot pay your mortgage, the VA makes it easy to find help. Borrowers are encouraged to contact their lender or reach out to the Department of Veterans Affairs directly.
Eligibility Requirements for VA Loans in California
A veteran must meet basic service requirements to be eligible for a California VA loan. The borrower must have had either 90 days of wartime service, 181 consecutive days of peacetime service, six or more years of service in the National Guard or Reserves, or be the un-remarried, surviving spouse of a service member who died in active duty or from a service-related disability.
To receive a California VA loan, a veteran with military service or a surviving spouse must find and contact a lender licensed in California. Borrowers eligible for a VA home loan apply first to receive a Certificate of Eligibility (COE). This document demonstrates to private mortgage lenders that the borrower has VA loan eligibility and entitlement.Pride Lending can hel you navigate the complex loan process and assist borrowers in obtaining the COE if required.
The VA Loan Process
Get your COE: The Certificate of Eligibility verifies a borrowers ability to get a VA Loan. Pride Lending can help you obtain your COE to make the process seamless.
Check Finances: Determining a budget is crucial to ensuring you know how much house you can afford. Examine how much money you have after necessities, such as utilities. An expert at Pride Lending can work with you to help you learn more about your debt to income ratio and finances.
Choose a Lender: Work with a lender like Pride Lending, a VA loan specialist in California. Your lender must understand how VA loans work, can guide you through the requirements, and maximize your benefits.
Shop for a House: Next, it’s time to find a house you’d like to purchase. Work with local real estate agents or check out online listings to find houses within your price range. Make sure your home meets your personal requirements, such as how many bedrooms it should have.
Purchase Agreement: A purchase agreement is a legally binding contract between the buyer and seller. These contracts outline the terms of the sale to protect the buyer and seller. For example, a buyer may put a clause in the contract in case the appraisal value is lower than expected. Many contracts include an Earnest Deposit Clause, which details how much the buyer will put down as a deposit and terms for refunding the deposit, such as if the buyer doesn’t make certain repairs.
Inspection and VA Appraisal: An inspection is often reccommended because it gives an in-depth look at the home’s condition. Buyers can negotiate a more favorable price if they have to spend a significant amount of money on repairs. A VA appraisal is required to obtain a VA loan. An indepednent VA appraisor will look at the property’s condition and ensure it meets the minimum property requirements to ensure veterans or their families don’t wind up with an unsafe property.
Complete Underwriting: Underwriting is the process lenders use to evaluate a borrower’s financial situation. You’ll need to submit proof of income, expenses, and assets. A lender will determine your debt to income ratio, look at your credit score, and evaluate your finances to determine if you are eligible for a loan.
Closing: Finally, you attend the closing and sign all necessary papers. In California, the funds are sent to escrow, the loan closes, and you receive the keys to your new home!
VA Loan Limits and Funding Fees
There is no VA loan limit for service members, veterans, and surviving spouses with full entitlement. Full entitlement means the borrower has never used their VA loan benefit, paid off a previous VA loan and sold the home, or used their VA loan benefit and had a foreclosure that they repaid in full. If a borrower has full entitlement, then there is no limit, in most cases, for a home loan of over $144,000, if they qualify. If they do not have full entitlement, a loan officer needs to perform a calculation based on the entitlement that will not be restored. This goes off of Freddie Mac's loan limits
In California, veterans without full entitlement are required to follow California VA loan limits. Limits vary by county and range from $766,550 in locations like Sacramento County to $1,149,825 in areas with higher home prices like Alameda County.
Regardless of the VA loan limit, all loans have a one-time VA funding fee that varies depending on the amount of money put down on the property and the borrower’s military service. The cost is a percentage of the total loan and fluctuates from 1.25% to 3.3%.