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VA Loans or CalVet Loans? That’s the question military service people interested in VA loans in California tend to ask, particularly when the state’s CalVet program is presented to them as a path to homeownership alongside the federal government’s VA loan program. According to Ed Hoffman, president of Wholesale Capital Corporation in Moreno Valley, there are indeed similarities between the two programs. “Both are home financing options for veterans and military personnel that allow them to purchase homes with zero money down; additionally, both programs eliminate the borrower’s obligation to pay for a private mortgage insurance (PMI) policy,” he said. “And finally, both programs substitute the down payment and mortgage insurance with a mandatory funding fee that is noted by the underwriter to ensure its fairness.”
And the parallels don’t end there. “Typically,” Hoffman said, “both CalVet and VA loans offer lower interest rates than conventional mortgages.” For the week of May 16, 2016, the interest rate on a 30-year fixed, conventional mortgage was 3.58% and the interest rate on a 30-year fixed, VA loan mortgage was 3.375%. “So clearly,” said Hoffman, “VA loans offer a better interest rate than conventional loans.”
CalVet loans also offer good interest rates; for VA loans in California with CalVet loans, the interest rate on a 30-year fixed for the same week was 3.50% For buyers who opt for a 20-year fixed mortgage with CalVet, the interest rate was only 3%. And even when there is no fixed rate, there is a fixed payment on both loan programs. That means even if the rate goes up, the payment does not; however, the term of the loan is extended.
The final similarity is that both programs allow borrowers to pay mortgage discount points if they so choose. These points are tax deductible, acting as pre-paid interest on a mortgage loan so that the borrower can obtain a lower interest rate. For VA borrowers, a maximum of two points is typically what is allowed.
Difference Between CalVet and VA Loans
Both the CalVet and VA loan programs are excellent home financing tools for military veterans. But because they are not identical, it is critical for military borrowers to understand the distinction so they can make informed home loan decisions and choose the better program for their home financing needs. “At Wholesale Capital Corporation,” Hoffman said, “we believe this distinction is what makes VA loans the preferable choice for our California borrowers.”
Hoffman explained that the difference is that while VA loans are guaranteed by the Department of Veterans Affairs, CalVet loans are procured using contracts of sale. In effect, a borrower using the CalVet program is not actually buying his property from the seller; he is buying it from the CalVet program, after the program purchases it from the seller. In a contract of sale, CalVet buys the home, then takes legal title to the property at close of escrow and sells the property to the borrower under contract.
When Does a Cal-Vet Borrower Own the Home?
That’s another common question regarding the Cal-Vet program. Here’s the answer: When the loan is paid in full (i.e., when the last payment is made or the borrower sells/refinances), then he or she is issued a grant deed that gives legal title to the property. Until then, the borrower only holds equitable title while the Cal-Vet program holds the legal title to the home. “Hopefully,” he said, “that explains why we at Wholesale Capital Corporation prefer VA loans for our California borrowers in the military. We want our borrowers to own their homes at the time of the purchase.”
Hoffman concludes, “The CalVet program for VA loans in California is certainly not a ‘bad’ program – but at Wholesale Capital Corporation, we believe can better serve military borrowers by originating VA loans in the majority of cases. In any case, borrowers need to discuss these options with a qualified loan officer.” To do this, contact Wholesale Capital Corporation at (844) 571- 2777.
