San Diego is the proud hometo a large military community, and I am honored to be able to help many military families buy homes in San Diego.
One of the first questions that first-time military homebuyers ask me is: Should I use a VA loan to buy a home in San Diego? There is sometimes a bit of stigma surrounding VA loans, but they are often just as good as (or better than) conventional loans. The VA guarantees up to a quarter of the loan amount, making VA loans a safe investment in the eyes of most lenders. And the process of buying a home with a VA loan is not substantially different than buying a home with a conventional loan or FHA loan UNLESS the home needs a lot of work... If the your VA appraiser deems the home to be unlivable, they may require certain repairs that a seller is unwilling to complete. Your exclusive buyer agent can help you determine whether or not you can obtain VA financing on any homes you're interested in.
This is the main draw of a VA loan. Most conventional loans require a down payment of at least 5%, while FHA loans require at least 3.5%. With a VA loan, though, eligible veterans and active military members can purchase a home of up to $424,100 in most parts of the country without a down payment. This is known as the 100% guaranty limit or 100% financing limit. In more expensive areas, the 100% guaranty limit can be even higher. For example, in San Diego County, the VA 100% guaranty limit is $690,000 (as of June 2019). The VA 100% financing limits do change occasionally, so you should always check with your local VA mortgage professional to get the most up-to-date numbers.
VA loans can also go over this limit, but if they do, the VA will only allow you to finance 75% of the property value/purchase price that exceeds the 100% limit. What does this mean in practice for San Diego VA homebuyers? If you are purchasing a $500,000 home in San Diego, you can get a VA loan for 100% of that purchase because it falls below the 100% guaranty limit. If, on the other hand, you are purchasing an $800,000 home, you can get 100% financing for the first $690,000 of the purchase price and 75% financing for the remaining $110,000. So your final VA loan (in the $800K example) will be in the amount of $772,500 and you will need to bring a down payment of $27,500. (Learn more about VA loan limits.)
#2. You don’t need to purchase mortgage insurance.
Borrowers with conventional loans or FHA loans who can’t put down 20% will typically need to purchase private mortgage insurance (PMI). This can add hundreds of dollars to your monthly payment. VA loans don’t require any type of mortgage insurance, regardless of how much (if any) you put down. They do come, however, with an extra upfront fee (the VA Funding Fee) that comes to about 2% of the loan amount. This fee helps finance the VA program (and helps offset some of the lender’s risk for the low-or-no down payment) and can be rolled into the loan amount. Veterans with service-connected disabilities usually don’t have to pay this fee at all.
#3. VA loans have more lenient requirements.
Most conventional home loans require a credit score of at least around 660, but VA buyers can often have a credit score up to 100 points lower and still qualify for a VA loan. In addition, borrowers with a history of bankruptcy and foreclosure can often still qualify for a VA loan, even if that foreclosure was on a VA loan-secured property. VA loans also don’t have any type of prepayment penalty; you can make extra payments anytime you want, which can save you lots in interest over the years. Finally, VA loans are reusable - as long as you pay off each loan, you can typically use your VA loan benefit multiple times.
VA loans limit the amount that borrowers can pay in closing costs and restricts the types of closing costs that VA homebuyers can pay. The non-allowable closing costs under a VA loan (meaning the closing costs that the buyer cannot pay) typically include lender document fees, notary fees, broker fees, transaction coordinator fees, and termite inspection fees. The VA also does not place a limit on how much of the closing costs can be covered by the seller (which is negotiable between you and the seller when you write an offer).
Of course, every home buyer’s situation is different, and there are times when a VA loan is not the best option. If you can swing the standard 20% down payment, a conventional loan may be a better fit for you because you can avoid the VA Funding Fee. VA loans are also intended for primary residences only, meaning you cannot use them to purchase an investment property or vacation home. VA loans also place limits on co-borrowers. If you’re planning to buy a home with someone other than your spouse or another veteran with a VA Loan entitlement who will live in the home with you, you may have to pay a down payment. And if you’re buying a condo or townhome, the VA is going to restrict your options only to complexes that are specially approved by the VA.
For many service members, however, VA loans are a great way to become a San Diego homeowner. If you think (or know) you’re eligible for a VA loan and are interested in purchasing a property in San Diego County, contact me today to request your Free VA Buyer Strategy Session - and thank you for your service!