How California VA Loans Can Reduce Upfront Buying Costs

Home prices in California have risen steadily over the last couple of years, and experts predict they will continue rising into 2018. As a result, many home buyers in California are seeking ways to reduce their upfront, out-of-pocket costs.

Military members and veterans have an advantage in this area, because most of them are eligible for VA home loans. A California VA loan could reduce your out-of-pocket home buying costs in several ways. Here are some of the cost-reducing benefits of this mortgage program:

1. You could finance 100% of the purchase price, with no down payment.
2. You could avoid paying mortgage insurance.
3. You could potentially reduce your closing costs.

1. California VA loans offer a zero-down-payment mortgage strategy.

One of the primary features (and advantages) of California VA loans has to do with the down payment — or lack thereof. This program essentially rewards military members and veterans by creating a path to homeownership with lower out-of-pocket costs. Eligible borrowers can use a California VA loan to finance 100% of the purchase price, in most cases, which eliminates the need for a down payment.

2. You could avoid paying mortgage insurance.

When home buyers make a down payment below 20%, they usually have to pay for mortgage insurance. This is true for both FHA and conventional loans.

When using a California VA loan, however, you could avoid mortgage insurance entirely. That’s because this program is backed by the federal government, through the Department of Veterans Affairs. Additionally, these loans have a very low rate of default and foreclosure, when compared to conventional (non-government-backed) home loans.

So now we have two ways a California VA mortgage loan could reduce your upfront home-buying costs. You could buy a home without a down payment and, in many cases, without mortgage insurance. But the benefits don’t end there. You might also be able to reduce your closing costs when using a VA loan in California, as explained below.

3. You could reduce the amount of closing costs.

When using a VA loan to buy a house in California, home buyers often have the option to take a higher rate in exchange for lower closing costs. This is what’s known as a lender credit. The borrower agrees to take on a slightly higher interest rate, in exchange for a credit paid toward their closing costs.

Depending on the situation, a slight increase in the mortgage rate could reduce the closing costs by thousands of dollars. This is a subject we’ve written about before, and you can learn more about it here.

As you can see, a California VA loan could reduce your out-of-pocket home buying costs in several ways. It could allow you to buy a house with no down payment, while avoiding mortgage insurance and reducing your closing costs at the same time.

This program offers a lot of flexibility and has some of the easiest qualification requirements of any mortgage program today. If you are a military member or veteran in California — and you’re thinking about buying a house in the near future — you should seriously consider it.