5 Money-Saving Strategies for VA Loan Borrowers in California

By eliminating the need for a down payment, the VA home loan program removes one of the biggest hurdles to homeownership.

Eligible home buyers in California who use a VA loan can finance up to 100% of the purchase price. Because of this, they don’t have to come up with as much money out of pocket to achieve their homeownership goals.

But there are other steps you can take to save money and reduce your total costs when using a VA loan in California. In this article, we will explore some of the strategies you could use to save money on a VA loan home purchase, both upfront and over the long term.

5 Ways to Save Money on a VA Loan Home Purchase

As a borrower, you have several different ways to lower your costs, reduce your monthly payments, and save money when using a VA-guaranteed mortgage loan.

Every lending scenario is different, because every borrowers different. So not all of these strategies will apply to your particular VA loan and home buying situation. Our goal is simply to put them on your radar, so you can research the ones that seem applicable.

1. Improve your credit score to get a lower rate.

Did you know your credit score can influence the interest rate you receive on a mortgage loan? Did you know there are steps you can take to boost your score, in order to secure a lower rate?

Both of these things are true, and they both have a direct impact on your total borrowing costs when using a VA loan. By increasing your credit score, you could potentially lower your monthly payments and save money on a VA loan home purchase.

A credit score is a three-digit number that summarizes a borrower’s credit history. It is one of the most important factors that lenders consider when pricing mortgage loans. Generally speaking, a higher score could help you qualify for a lower interest rate on your VA loan.

There is no mystery when it comes to improving a credit score. But it does require patience and persistence over time. Here are some of the steps you could take to increase your credit score, according to the credit reporting bureaus:

Pay your bills on time and in full. This is the most important thing you can do to improve your credit score.
Keep your “credit utilization” low by limiting use and maintaining low balances.
Open new credit accounts sparingly, and only when you absolutely need to.
Avoid closing old credit accounts (at least for now). The length of your credit history is a factor in your credit score, so it’s best to keep old accounts open, even if you’re not using them.

2. Put some money down, if you can afford to.

As mentioned above, California home buyers who use a VA loan can finance up to 100% of the purchase price. This means you can buy a house without making any down payment. That’s one of the major benefits this program offers.

But if you can afford to put some money down on your purchase, you could potentially reduce your interest costs over time.

The more money you put down upfront, the less you have to borrow from the lender. This can reduce the size of your monthly payments as well as the total amount of interest paid over the life of the loan.

For example, a $400,000 VA loan with a 30-year term and a 7% interest rate will have a monthly payment of around $2,322. But if the borrower made a 5% down payment of $20,000, the monthly payment would drop to around $2,228, saving them $94 per month.

Again, the VA loan program allows borrowers to skip the down payment entirely. But there are some clear advantages to putting some money down. So it’s worth considering at the very least.

3. Consider using mortgage discount points.

VA loan borrowers could also save money by paying mortgage discount points at closing. As the name suggests, a “discount point” allows you to discount or reduce the interest rate you receive on your VA loan. This in turn will reduce your monthly payments and total interest costs.

This strategy requires a trade-off, as well as some forethought and planning. You’re basically paying more money upfront to achieve greater savings over time. But it only works if you keep the loan for a certain period of time.

Related: pros and cons of using discount points

Each discount point is equal to 1% of the loan amount and could lower your interest rate by 0.25%. Depending on how long you stay in the home (and keep the loan), this strategy could save you thousands of dollars over time. But if you think you will only be in the home for a few years, discount points probably won’t work to your advantage.

4. Consider using an ARM loan.

Many home buyers in California stay in their homes for less than seven years, before selling and moving on to another residence. This is especially true for active-duty military members, who rotate from one duty station to another.

In such cases, a home buyer could save money on a VA loan by choosing an adjustable-rate mortgage instead of the more popular fixed-rate option.

An adjustable-rate mortgage (ARM) loan is a type of mortgage loan where the interest rate can change over time. This is in contrast to a fixed mortgage, where the interest rate remains the same for as long as the borrower keeps the loan.

ARMs typically start off with a fixed interest rate for the first few years. This initial stage can last anywhere from one to seven years, depending on the terms of the loan.

During the initial fixed-rate phase, ARM loans tend to have lower interest rates when compared to a fixed mortgage. This makes them well suited for budget-minded home buyers who only plan to stay in a home for a few years.

If you are looking for ways to reduce your monthly payments and overall costs when using a VA loan, spend some time researching the adjustable-rate mortgage option. It’s not right for every borrowing scenario, but it might be right for you.

5. Negotiate your closing costs if possible.

In California, a home buyer’s closing costs can add up to thousands of dollars. The VA loan program allows borrowers to avoid making a down payment, but they still encounter closing costs in most cases.

The Department of Veterans Affairs allows borrowers who use VA loans to seek contributions from the seller. Also known as a “seller concession,” this is when the seller contributes money toward the buyer’s closing costs.

This is another strategy that could help you reduce the upfront costs associated with a VA loan in California. But check with your real estate agent before requesting a seller concession. In a hot real estate market, such a request could work against you.