VA, Cal-Vet Loans Offer Veterans Simple Route to Home Ownership

Veterans in California can take advantage of two major home loan programs that offer reasonable interest rates, easy qualification and little or no down payment.

For the many vets and their families in Ventura County and the San Fernando and Antelope valleys, obtaining a loan backed by the Veterans Administration or a so-called Cal-Vet loan is the easiest and best route to home ownership.

The VA doesn’t loan money, but it does guarantee a portion of loans made by private lenders to qualified vets. Millions of homeowners have VA-backed loans--featuring favorable fixed interest rates and no need for a down payment. The VA’s guarantee effectively replaces the need for a down payment.

VA loans are available to individuals who are either in the service now or who left the military without a dishonorable discharge. Veterans are required to have served at least 90 days on active duty during wartime or 181 days continuously during peacetime. Vets who entered the service within the last 15 years generally have to have completed 24 months of continuous active duty to qualify for the VA loan program. Members of the Reserves and National Guard are not eligible for VA loans unless they were officially “activated” during their term of service.

“Most of the vets who come to me don’t have cash, but they’re still able to buy a home,” said loan broker Robert Schwartz, president of Tower Funding of Valencia Inc. “That’s what makes the VA loans such a great deal.”

Vets can generally borrow up to about $203,000, although that sum will typically include a funding fee that is added to the balance of the loan and amortized over the loan term. The fee is 2% for first-time VA borrowers and 3% for borrowers getting a subsequent VA loan.

The current interest rate is fixed for 30 years at 7%, Schwartz said, and borrowers can qualify as long as 41% or less of their gross income is being spent on principal payments, interest being paid on total household debt, taxes for the property and insurance for the property. VA borrowers can refinance without a formal appraisal or credit test and VA loans are assumable by credit-qualifying non-vets. These loans--along with FHA-backed loans--are, in fact, among the few fixed-rate mortgages assumable by a subsequent buyer.

The only downside to VA loans is that they aren’t useful for loans of more than about $203,000, the loans frequently take somewhat longer to clear escrow than conventional loans and sellers may be less flexible with VA buyers on price because federal law forbids lenders from charging borrowers points and closing costs. As a result, the seller ends up paying for these costs of closing the deal and may be less willing to bargain on the price.

Ron Hier, an agent at Coldwell Banker Hartwig Realty in Lancaster, believes the pluses of VA loans significantly outweigh any minuses for vets. “How many loans let a borrower get into a home for no money down?” asked Hier. And, he added, “the VA loans really don’t take more time or paperwork than other loans.” The roughly $3,200 that a typical seller has to pay in closing costs for both sides of the deal doesn’t usually make sellers totally unwilling to negotiate price, Hier said.

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A second type of loan for vets is available through Cal-Vet, which is funded through the sale of both state of California general obligation bonds and veterans’ revenue bonds. This program provides direct financing of up to $250,000 with an annual interest rate currently fixed at 8%. Cal-Vet loans are considered relatively easy to qualify for from a credit perspective.

“We won’t discriminate because of a bankruptcy or foreclosure if the borrower can show a good reason for what happened in the past,” said Ron Baca, manager of the Oxnard district office of the California Department of Veterans Affairs, which oversees the Cal-Vet loan program. “We are more lenient than other lenders.”

Cal-Vet charges no points and a mere $50 application fee. Borrowers can have a relatively high debt-to-income ratio and still get money from Cal-Vet. The financing also comes with a life insurance policy that will pay off the obligation if the vet dies. And Cal-Vet can provide construction financing and bridge financing for buyers who may still be trying to sell their old home and are paying temporarily for two residences.

There are downsides, however, to the Cal-Vet program. Cal-Vet requires a minimum of 5% as a down payment. Borrowers also don’t get title to their property until the whole Cal-Vet loan is paid off. There is no deed of trust and the state of California retains title to the property until the installment contract is totally satisfied.

There are also more restrictions on who can apply for a Cal-Vet loan. An individual must have served at least 90 days on active duty and, if discharged, the discharge must have been honorable. Unless a campaign or expeditionary medal was authorized by the U.S. government for the applicant’s period of active duty, at least one day of active service must have been during a “qualifying war period.” This includes serving during World War II, the Korean War, Vietnam War, Operation Desert Storm, Operation Restore Home (in Somalia) or the current mission in Bosnia.

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Would-be borrowers are advised to check out all the qualification requirements and restrictions. More information about VA loans and other veteran benefits is available by telephoning the Department of Veterans Affairs at (310) 479-4011. Information about Cal-Vet loans is available by telephoning Cal-Vet’s toll-free information line at (800) 952-5626 or Cal-Vet’s Oxnard district office at (805) 983-7477.

Ron Galperin is a real estate attorney with Wolf, Rifkin & Shapiro in West Los Angeles.