Buying a Home in California with a VA Loan: A Complete Guide

California is home to over 10 million veterans, making it the state with the largest veteran population in the country. With sunny weather a booming economy and plenty of great places to live, it’s no wonder so many veterans choose to settle in the Golden State after leaving the military.

One of the best benefits available to eligible veterans is the VA home loan. VA loans offer key advantages that can help make buying a home in California more affordable, even in competitive housing markets like Los Angeles, San Francisco, and San Diego.

In this comprehensive guide, we’ll explain everything you need to know about using your VA home loan benefit to become a homeowner in California

What is a VA Home Loan?

The VA home loan program helps eligible veterans, active-duty service members, reservists, and surviving spouses buy a home. These government-backed loans are provided by private lenders like banks and mortgage companies

The Department of Veterans Affairs guarantees a portion of the loan amount, protecting the lender from potential loss if the borrower defaults. This VA guaranty allows lenders to offer more favorable terms compared to conventional mortgages.

Some of the key advantages of VA loans include:

• No down payment required – Unlike conventional loans, VA loans don’t require any down payment. This makes it easier for veterans to buy with less cash upfront.

• No mortgage insurance – Conventional loans with less than 20% down require private mortgage insurance (PMI). The VA guaranty eliminates this added cost.

• Lower interest rates – Interest rates on VA loans are capped, meaning they can be lower than rates on conventional mortgages.

• Flexible credit guidelines – VA loans have more lenient credit standards than conventional loans. Minimum credit scores are lower and there is more flexibility on high debt-to-income ratios.

• No prepayment penalties – VA loans allow you to pay off your mortgage early without incurring expensive penalties.

• Ability to reuse benefit – Veterans can use their VA home loan eligibility more than once. You can buy another home with a VA loan after selling the first home you purchased with a VA loan.

Am I Eligible for a VA Home Loan in California?

To qualify for a VA home loan, you must meet VA’s minimum service requirements. In general, you must have:

• At least 90 days of active-duty service, and been discharged under conditions other than dishonorable
• At least 181 days of active-duty service during wartime
• At least 6 years in the reserves or National Guard
• Surviving spouses of veterans who died from service-connected disabilities may also be eligible

In addition to meeting VA’s service requirements, you’ll also need to meet these basic criteria:

• Good credit (VA minimum credit score is 620)
• Sufficient income to meet your financial obligations
• Stable employment history

VA doesn’t set strict income limits, but lenders will want to see you can reasonably afford the mortgage payment and other obligations. Your debt-to-income ratio can be as high as 60% with a VA loan.

Getting Pre-Approved for a VA Loan

Before starting your home search, it’s important to get pre-approved for VA financing. Pre-approval involves providing documents to verify your income, assets, and credit.

The pre-approval letter states the maximum loan amount the lender will offer based on your financial profile. This helps home sellers take your offer seriously knowing you are qualified and able to obtain financing.

Here’s what to expect during the pre-approval process:

Verify your eligibility – Your lender will verify you meet VA’s minimum service requirements to use the home loan benefit. Having your DD214 discharge papers makes this easy.

Document your income – Pay stubs, W-2s, tax returns, and bank statements will be needed to confirm your income. Any retirement or disability income must also be documented.

Check your credit – The lender will pull your credit reports from the three major bureaus to determine your credit score and history. Minimum FICO scores are 620 for VA loans, but many lenders prefer scores of at least 660.

Calculate your debt-to-income ratio – Lenders will add up your monthly debt payments like car loans and credit cards. This gets divided by your monthly gross income to determine your DTI ratio. VA allows DTIs up to 60%.

Get your Certificate of Eligibility – Also called the COE, this document comes from VA and confirms you qualify to use the home loan benefit. Your pre-approval letter won’t be issued until the COE is obtained.

Shop for lenders – Compare mortgage rates and fees to find the best VA loan offers. Review lender reviews and VA loan volume, which indicates experience with the program.

Using Your VA Entitlement

Your VA home loan benefit is called entitlement. The amount of available entitlement determines how much the VA will guarantee on your loan.

For loans over $144,000, you need full entitlement, which is $36,000 for most veterans. You can reuse your entitlement again for another VA loan after paying off the first loan.

Entitlement gets restored once the prior VA loan is paid off. However, loans over $144,000 require at least 25% entitlement remaining.

The good news is you don’t have to worry about the entitlement calculations. Your lender will determine how much entitlement you have available and the maximum loan amount you qualify for.

VA Loan Limits in California

The VA home loan program insures loans up to certain dollar limits that vary by county across the U.S. VA loan limits are typically higher in more expensive real estate markets.

Here are the current 2023 VA loan limits for several major California counties:

• Los Angeles County – $1,074,000
• Orange County – $1,074,000
• San Diego County – $1,074,000
• Alameda County (Oakland) – $1,074,000
• San Francisco County – $1,501,250
• San Mateo County – $1,351,750
• Santa Clara County (San Jose) – $1,351,750
• Sacramento County – $647,200
• Riverside County – $726,525
• San Bernardino County – $726,525

VA loan limits tend to go up nearly every year in high-cost areas. You can check updated VA loan limits by county on the VA website.

Finding the Best VA Mortgage Lender

Shopping lenders is one of the most important steps to get the best VA loan deal. Compare interest rates, fees, and lender reputation.

We recommend getting quotes from 3-5 lenders. Here are some things to look for:

• VA loan experience – Check reviews and see how long lenders have been originating VA loans. More experience means smoother processing.

• Loan officers – Ask to work with a loan officer who specializes in VA loans. They will know the program best.

• Rates and discounts – Compare interest rates and any discounts lenders offer. Discounts can be “buying down” the rate by paying points upfront.

• Fees – Ask for a full fee breakdown and compare origination fees. Lower is better, but avoid very low fees that indicate cut corners.

• Closing costs – VA limits closing costs lenders can charge. Shop lenders to minimize these fees.

• VA funding fee – This upfront fee is charged by VA to the borrower. Most lenders charge the same fee, but some offer discounts.

• Reviews – Check online reviews of lenders on sites like Google, Zillow, and NerdWallet. Look for red flags about poor communication or delays.

We recommend looking at both online mortgage lenders and local banks/credit unions when shopping for your VA loan. Compare options to find the best fit for your scenario.

7 Mistakes to Avoid With VA Loans

While VA loans offer great benefits, you’ll want to avoid these common mistakes borrowers make:

1. Not shopping around – Failing to compare multiple lenders can mean you miss out on better VA mortgage rates and fees.

2. Using a non-specialist lender – Some mortgage companies rarely do VA loans. Stick with lenders who handle these loans regularly.

3. Paying for credit repair – Don’t pay a credit repair company to try boosting your score for a VA loan. Scores as low as 580 can qualify if other factors are strong.

4. Assuming you need a down payment – VA loans don’t require any down payment for eligible borrowers. Many veterans wrongly assume they need 20% down like conventional loans.

5. Overborrowing – Just because you qualify for a higher loan amount doesn’t mean you should borrow to your limit. Build in a budget cushion.

6. Not getting fully pre-approved – Get a fully underwritten pre-approval instead of just a prequalification. This speeds up the final loan approval process.

7. Not knowing the closing costs – Many VA loan fees are limited, but ask your l