The Biggest Benefits of Using a VA Home Loan in California

The VA loan program offers a number of benefits for military members and veterans who want to buy a home in California. And we’ve written about many of those benefits in the past, on an individual basis.

Below, we’ve compiled some of the biggest benefits California VA home loans offer, to help you understand the true value of this program.

California VA Home Loan Benefits Explained

In simple terms, a VA loan is simply a mortgage loan that gets insured by the federal government, through the U.S. Department of Veterans Affairs. This insurance protects the mortgage lender rather than the borrower.

But, as you’ll soon see, this government backing creates some major benefits for home buyers as well.

In California, the VA loan program is limited to military members, veterans, and certain surviving spouses. Similar to the G.I. Bill, military members earn their VA home loan benefits by serving honorably for a specific period of time.

Active-duty military members are typically eligible for this program after just 90 days of continuous service. California National Guard and Reserve members are generally eligible after six years of regular service, or 90 days of continuous active-duty service.

Here are the biggest benefits this program offers:

1. Zero Down Payment

This program allows you to obtain a mortgage loan large enough to cover the entire purchase price of the house. So you don’t even need to make a down payment.

This is a major benefit in any real estate market, but especially in pricier markets like those found in California. Let’s plug in some numbers to see how much you could benefit by taking the down payment out of the equation.

The median home price for the state of California is currently around $784,000. Here’s how much the down payment would be on a median-priced home at some of the most common down payment thresholds:

• 3% down (minimum for some conventional loans): $23,520
• 3.5% down (minimum for FHA loans): $27,440
• 6% down (average down payment among first-time buyers): $47,040
• 20% down (investment needed to avoid mortgage insurance): $156,800

As you can see, even the absolute minimum down payment for a conventional loan in California can add up to more than $20,000. Some conventional loans require at least 5% down, which would come to nearly $40,000 on a median-priced home in California.

The VA loan program benefits home buyers by allowing them to avoid this significant upfront expense. It accelerates the home-buying timetable, allowing military members to purchase a home sooner rather than later.

This alone is a good reason to consider using a VA loan. But the program offers other important benefits as well.

2. No Private Mortgage Insurance (PMI)

Conventional loans often require borrowers to pay for private mortgage insurance (PMI) when they make a small down payment. In contrast, the VA home loan program never requires mortgage insurance, even if you finance the entire purchase price.

This can result in significant savings over the life of the loan. In California, a standard PMI policy can add hundreds of dollars onto a homeowner’s monthly mortgage payments.

So the VA loan program essentially removes two of the major obstacles encountered by military home buyers in California: the down payment and mortgage insurance.

3. Flexible Credit Requirements

The VA loan program typically has more lenient credit requirements compared to conventional loans. In fact, borrowers who’ve been turned down for conventional loans due to past credit issues can often qualify for the VA home loan program.

Mortgage lenders who participate in this program receive additional protection from the government in the form of a partial guarantee. If a homeowner with a VA loan defaults or stops paying, the mortgage lender can receive compensation from the government.

This added layer of protection reduces the mortgage lender’s risk, allowing them to be more flexible when it comes to qualifying and approving loan applicants.

4. Competitive Interest Rates

VA loans tend to offer lower interest rates than conventional (non-government-backed) home loans. This could potentially lead to significant savings throughout the life of your mortgage, reducing your monthly payments and overall borrowing costs.

Even a small reduction in the interest rate can make a big difference over the long-term. When it comes to buying a house in an expensive market like California, every little bit of savings can help!

5. Streamlined Refinance Options

The VA offers streamlined refinance options, such as the Interest Rate Reduction Refinance Loan (IRRRL). This program allows borrowers to refinance their existing VA mortgages in order to secure a lower interest rate on the new loan.

But unlike a traditional refinance transaction, the VA’s version does not require a home appraisal prior to funding. It also requires a lot less paperwork, which is why a lot of lenders refer to it as a “streamline” refinance.

6. Assumption of VA Loans

In California, VA home loans are typically assumable. This means that a qualified home buyer could take over (or “assume”) your existing VA loan when buying your house. Essentially, they inherit your loan, rather than starting a new one from scratch.

Loan assumption can benefit the new buyer, especially if current interest rates are significantly higher than the rate assigned to the existing VA loan. In such cases, the new buyer secures better loan terms than they might find in the open market.

Given California’s sizable military population, including both active-duty personnel and veterans, there’s typically high demand from military home buyers looking for properties. Holding an assumable VA loan could help you attract buyers and expedite the sale process.

Let’s talk! We specialize in the VA home loan program and work with borrowers all across California. Please contact us if you’d like to learn more about this program and how it might benefit you when buying a home.