Veterans have unique options when looking for a home. One of the most well-known programs is the Department of Veterans Affairs program. For Veterans looking to buy in California, there’s also the CalVet Home Loan program through the California Department of Veterans Affairs.
Wondering how to decide which program is right for you? This helpful guide looks at the differences between CalVet and VA home loans. Consider the advantages and disadvantages of each to help you choose a program that fits your needs.
What’s the Difference Between CalVet and VA Home Loans?
The biggest differences between a CalVet loan and a VA loan are the lender and the legal titleholder.
With a CalVet loan, the state of California is your lender. Through the CalVet program, the agency actually purchases your home and then sells it to you through a contract of sale.
After CalVet purchases the home, you’ll hold equitable title on the home, while CalVet holds legal title. This allows you to have benefits of ownership, such as deducting mortgage interest at tax time.
A VA loan, on the other hand, comes through a third-party lender, like a bank, who is part of the VA loan program. The VA guarantees your loan, encouraging lenders to offer better terms for Veterans. When you use a VA loan, you’ll receive full legal title when you acquire the home.
Advantages and Disadvantages of CalVet Home Loans
The CalVet home loan program can be a good option for many Veterans in California. Consider weighing the pros and cons of the program to see if it’s right for you.
Advantages of CalVet Home Loans
One of the biggest advantages of the CalVet program is access to group rates for homeowners insurance. Since the legal title of the home is in CalVet’s hands, they can offer discounted group homeowners insurance rates. Your insurance is almost always included in your loan and offers great coverage with a low deductible.
Another advantage of a CalVet loan is the ability to finance the funding fee for the loan. Depending on the cost of your home, you may qualify for 100% financing through CalVet. One hundred percent financing is only available up to the CalVet loan limit of $521,250.
Disadvantages of CalVet Home Loans
While a CalVet loan can be a great option for Veterans wanting to settle in California, there are some drawbacks to consider. As CalVet retains legal title to the home, you’ll lose flexibility in your loan. For example, you can’t refinance your home loan through CalVet. If you want to refinance your loan, you’ll need to get a new loan through a different program, such as a conventional loan. This also makes it more difficult to get a second mortgage or use the equity in your home.
Loan limits on CalVet home loans can be a disadvantage as well. Other types of loan products have varying limits based on the cost of living in certain areas. For example, the loan limit might be higher in places like Los Angeles or Orange County, where home prices are higher. Through the CalVet program, you won’t have access to higher limits in higher cost of living areas.
Additionally, depending on the timing, the interest rate for CalVet loans is can often be higher than VA loan rates. The program is self-funded through bonds which are issued infrequently, so interest rates fluctuate less often than other mortgage rates.
Advantages and Disadvantages of VA Home Loans
VA home loans are often a popular option for Veterans throughout the country, including California. Learn the benefits and drawbacks of a VA loan.
Advantages of VA Home Loans
With a VA loan, you hold the legal title to your home right away. If you decide you want to refinance your mortgage to take advantage of lower rates or use the equity in your home, you can. You’ll probably get a better interest rate with a VA loan than you would with a CalVet loan.
You can also choose to leave the property and rent it out after occupying it for a few years. With a CalVet loan, you must occupy the property for the life of the loan.
Loan limits for VA loans how now essentially been eliminated thanks to recent legislation passed in 2019 vary for areas of higher costs. If you’re looking to purchase a home in one of the more expensive areas of California, like San Diego, VA loans can provide a very lofty loan amount for 100% financing. higher loan limit.
Disadvantages of VA Home Loans
The cost and availability of homeowners insurance is less flexible with a VA loan. You won’t qualify for group rates on insurance when you buy your home. You might also have trouble finding affordable insurance options depending on the location of your home. Areas of high wildfire or earthquake risk, for example, are often more expensive to insure.
No matter which type of loan you choose, Veteran loan programs are a great way to get favorable terms when purchasing a home.
