Orange County FHA, VA & First Time Buyer Loan Information: November 2013

Why Refinancing from a CalVet Loan to a VA Home Loan Might Make Sense

The CalVet loan program is for purchases only. CalVet borrowers wishing to refinance will need to do it into another type of home loan. The most logical type of loan is the standard VA home loan. In high cost areas of California, like Orange County, the CalVet loan program has not been too popular over the past few years for a couple of reasons. First, the 100% loan limit for a standard VA loan tends to be higher than allowed with CalVet. In 2013 a Veteran buying a home with no down payment in Orange County can go as high as $668,750. The 100% financing limit for CalVet is $521,250. The other reason is that over the past few years interest rates for the standard VA loan program have been lower than that offered by CalVet.

Still, there are CalVet borrowers throughout California who have not been able to take advantage of the loan rates since CalVet does not allow refinancing, and with low property values it was not possible to refinance into another type of loan program.

What is a CalVet Home Loan?

The CalVet home loan program is specifically for Veterans purchasing a home in California. It is a separate program from the standard VA home loan. The primary difference is in how it is funded. CalVet uses a Contract of Sale as the financing instrument for the loan on a home. CalVet purchases the home selected by the Veteran and takes legal title to the property at the close of escrow. The property is then sold to the Veteran using a Contract of Sale. A standard VA home loan is closed in the same manner as most other types of loan programs, using a mortgage Note and Deed of Trust, which the Veteran holding title to the property with the recorded loam on title.

There are Federal and State laws preventing a CalVet borrower from refinancing into a new CalVet loan. And why would a CalVet borrower want to refinance in the first place?

  • To lower their interest rate and payment. Interest rates go up and down. A CalVet borrower with a high interest rate may find they can save money by refinancing to a lower interest rate. 
  • Shorten the Term of their loan. In some cases, a CalVet borrower may want to not only take advantage of a lower interest rate, but also may want to shorten the term of their loan by refinancing into a 15 year fixed program, which also tends to have lower interest rates than a 30 year fixed.
  • To consolidate debt. Sometimes homeowners will use installment loans to pay for home improvements, or will end up with credit card debt that is difficult to pay off. Refinancing to consolidate debt can save a lot of money.
  • Pay for Home Improvements. Many CalVet borrowers have held off on home improvements because of low property values and a lack for funds to pay for improvements. However, California has experienced good property value appreciation in 2013, which has presented a great opportunity for CalVet home loan borrowers to take advantage of their new equity positions to make the home improvements they've been wanting to make.

Why a VA Refinance May Make Sense

VA has many advantages for Veterans looking to refinance.

  • Low 30 year and 15 year fixed rates
  • No mortgage monthly mortgage insurance even when the loan to value is over 80% - like you would have on Conventional financing.
  • Flexible credit qualifying compared to Conventional loans.
  • Flexible credit qualifying compared to Conventional loans.
  • If consolidating debt or pulling cash out, there are VA lenders in California that will allow a VA home loan up to 95% of the properties value.
  • The VA home loan allows for a "rate and term" refinance up to 100% of the property value.

The first step in determining whether a refinance out of a CalVet home loan and into a VA home loan makes sense is to talk to a local Orange County VA home loan specialist. The VA home loan specialist will be able to prepare custom loan scenarios with details on the new loan amount, payment, and closing costs. A thorough analysis should be made to make sure the refinance does truly make sense for the borrower.

Authored by Tim Storm, an Orange County, CA Mortgage Loan Officer MLO 223456 - Please contact my office at Home Point Financial. Direct line at 949-640-3102. www.OrangeCountyVALoans.com

 

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Comment balloon 3 commentsTim Storm • November 29 2013 09:06AM
Why Refinancing from a CalVet Loan to a VA Home Loan Might Make Sense
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