VA loans are excellent products for eligible veterans and active-duty members primarily because of the zero down payment. Moreover, VA loans have less strict lending requirements compared to conventional loans.

Homeownership is a dream for many people in California. However, not everyone has access to a loan program as favorable as a VA mortgage. With the average listing price of a house in California of $609,757, the VA loan’s zero down payment benefit is a significant advantage for those looking to buy a home in this state.

What Is a VA Loan?

A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs and issued by a private lender, such as a mortgage company, credit union, or bank. This type of loan can make it easier to buy a house since it normally doesn’t require a down payment.

Only active-duty military personnel, qualified U.S. veterans, and some surviving spouses are eligible for VA loans. The FI Bill of Rights created the VA home loan program in 1944 to aid veterans in getting a foothold in civilian life after World War II ended.

The VA’s guarantee means the government will repay a part of a VA loan if the borrower doesn’t. This assurance reduces lenders’ risk, allowing them to offer favorable terms and require no down payment.

You can complete the VA loan application process through a lender of your choice if you’re eligible. Most lenders offer VA mortgage loans in California, and some specialize in serving VA loan borrowers.

How to Apply for a VA Loan

The application for a VA loan is similar to that of a conventional loan, with one exception. Borrowers looking to use their VA entitlement to buy a house in California must get their Certificate of Eligibility (COE). COE is an official document provided by the Department of Veterans Affairs showing lenders you’re eligible for the VA loan program.

Military members can request this document through the VA’s website or their local mortgage lender.

How Much Can You Borrow with a VA Loan?

Before 2020, veterans who wanted to use the VA loan program’s zero down payment were limited to borrowing only a certain amount and couldn’t surpass that limit. Each year new VA loan limits are set in place, and they represent the maximum loan amount a veteran can borrow in their location. If they borrow a higher amount, it would be considered a jumbo loan, which requires a down payment.

However, VA loan limits have been eliminated as of January 1, 2020, meaning borrowers eligible for a VA loan now have stronger purchasing power. They can look for homes in higher price ranges and still not have to make a down payment.

If you’re considering a VA loan in California, be aware that you may still be subject to loan limits if you already have an active VA loan or have defaulted on a VA loan in the past. In such a case, the loan limits would follow the conforming loan limit in your area:

• Alameda: $970,800
• Contra Costa: $970,800
• El Dorado: $675,050
• Los Angeles: $970,800
• Marin: $970,800
• Monterey: $854,450
• Napa: $897,000
• Orange: $970,800
• Placer: $675,050
• Sacramento: $675,050
• San Benito: $970,800
• San Diego: $879,750
• San Francisco: $970,800
• San Luis Obispo: $805,000
• San Mateo: $970,800
• Santa Barbara: $783,150
• Santa Cruz: $970,800
• Solano: $647,200
• Ventura: $851,000
• Yolo: $675,000
• Other Areas: $647,200

Surpassing these loan limits would constitute the loan a jumbo loan and require a down payment.

Can You Use VA Loans More than Once?

After using a VA loan to buy a home, you can get another if:

• You sell the home and pay off the VA loan.
• You sell the home, and a veteran buyer agrees to assume the VA loan.
• You repay the VA loan and keep the house. For only one time, you can get another VA loan to buy an additional house as your primary residence.

Property Taxes in California

When looking to get a VA loan in California, you should also consider property taxes. There are exemptions in case you meet one of the following conditions:

• If you’re a qualified veteran, the basic Disabled Veterans’ Exemption on property tax on the primary residence can be up to $100,000. A low-income exemption can be up to $150,000.
• You may get an exemption of up to $4,000 if you’re a veteran who owns a limited amount of property, such as $10,000 or less if you’re married and $5,000 or less if you’re single.

The Benefits of VA Loans

Below are some of the benefits of VA loans compared to FHA and conventional loans:

• Down payment and mortgage insurance aren’t required: Other loans require a down payment and may include an additional cost for mortgage insurance. FHA loans require mortgage insurance regardless of the down payment amount. Conventional loans typically require mortgage insurance if the down payment is less than 20%.
• Competitive interest rates: Average 30-year mortgage rates were lower for VA loans than for conventional and FHA loans in December 2021.
• Limited closing expenses: The Department of Veterans Affairs restricts the lender’s origination fee to no more than 1% of the loan amount. It also forbids lenders to charge some other closing costs.

The Disadvantages of VA Loans

Each type of loan has some disadvantages. Below are potential drawbacks of VA loans:

• VA loan funding fee: Even though VA loans don’t require mortgage insurance, they come with an additional cost called a funding fee. This fee is set by the federal government and covers the expense of foreclosing if a borrower defaults. It ranges from 1.4% to 3.6% of the loan, and you can pay it upfront or fold it into the loan.
• Only for primary homes: You can’t use a VA loan to purchase a vacation home or an investment property.
• Not all properties are eligible: A VA-approved appraiser will evaluate the house you want to purchase to assess the value and ensure it meets the VA’s minimum property requirements. Note that some fixer-uppers may not meet the VA’s standards.

Use the Perks of VA Loans

After reading this article, you have a good idea about how VA loans work in California. With this type of loan, you get many perks. The most considerable benefit of VA loans is that they don’t require you to make a down payment. In a market as hot as California, this is an incredible advantage.

So, if you’re an eligible veteran or active-duty member, why not take your chances and use the perks of VA loans to buy your dream home?

Published: 2022-05-18 22:43:21