Fact: California VA Loans Do Not Require Mortgage Insurance

In a previous article, we addressed the misconception that VA loans require a down payment. (The short version is that they don’t.) Today, we’ll focus on another common misconception about VA loans in California — mortgage insurance.

Here’s the most important takeaway from this article: California VA loans do not require a down payment or mortgage insurance. This is what draws so many borrowers to the program in the first place. It allows eligible home buyers to purchase a house with no money down and no mortgage insurance requirements.

We’ll get back to the mortgage insurance component in a moment. But first, let’s take a step back and talk about what this program is and who’s eligible for it.

A Unique Program That Offers Big Benefits

The VA home loan program was created in the 1940s, near the end of World War II. It was part of the Servicemen’s Readjustment Act (also known as the “G.I. Bill of Rights”), signed into law by Franklin D. Roosevelt.

The VA loan program was designed to reward military members and veterans for their honorable service, and to help them overcome common obstacles to homeownership.

Specifically, this unique mortgage program allows qualifying military members and veterans to buy a home in California without making a down payment. Borrowers can finance up to 100% of the purchase price, eliminating the need for an out-of-pocket investment.

But that’s not the only benefit. Home buyers who use a California VA loan can also avoid paying mortgage insurance. This can save borrowers hundreds of dollars per month, in many cases.

Mortgage Insurance Is Not Required for VA Loans

As it states on the Department of Veterans Affairs website: “the VA home loan program doesn’t require down payments or monthly mortgage insurance.”

They go on to explain that this added benefit can be a real money-saver for home buyers:

“With a VA loan, you also avoid steep mortgage insurance fees. At 5 percent down, private mortgage insurance (PMI) costs $150 per month on a $250,000 home, according to PMI provider MGIC.”

As we know, most homes in California cost more than the $250,000 mentioned in the above quote. The statewide median home price was around $790,000 as of spring 2022.

So a home buyer in California who uses a VA loan could save a lot more than the $150 per month mentioned above. The total monthly savings could easily amount to $400 or $500 per month. When you add this to the no-down-payment option mentioned earlier, you can see how the benefits add up.

We’ve covered some important points that bear repeating:

• VA loans in California do not require mortgage insurance.
• This benefit can potentially save borrowers hundreds of dollars per month.
• Many home buyers who use this program can finance up to 100%.
• VA loans have some of the most flexible criteria of any mortgage program.

Conventional Mortgages, Down Payments and PMI

Borrowers who use a VA loan to buy a home in California can enjoy benefits not available with most other mortgage programs.

With a non-government conventional home loan, for example, buyers who put down less than 20% on a purchase usually have to pay for private mortgage insurance (PMI). As we’ve already discussed, this could potentially add hundreds of dollars onto the monthly mortgage payment.

But PMI does have its advantages. It allows home buyers to purchase a house with less money down — and therefore sooner rather than later. But it’s still an added expense on top of the mortgage principal and interest. That’s why some borrowers put down at least 20% on a home purchase. They do it to avoid PMI.

But again, the private mortgage insurance requirement only applies to conventional loans that are not guaranteed by the government. VA loans do receive a government guarantee, and this allows borrowers to avoid the PMI that would normally be “triggered” by a small down payment.

We Are Your California VA Mortgage Specialist

Would you like to learn more about the many benefits offered by a California VA loan? Give us a call or send us an email. Bridgepoint Funding specializes in this program, and we can answer any questions you might have.

For nearly 20 years, we’ve been helping California military members and veterans turn their homeownership dreams into reality. We can even offer VA loans over $1 million, which is ideal for high-priced real estate markets like the San Francisco Bay Area.