Guidelines: The Difference Between CALVET & VA
What You Need to Know
If you’re a veteran or an active-duty service member looking to buy a home in California, you have two main options for financing: CALVET Loans and VA Loans. Both loans are designed to help military members achieve home ownership, but they come with unique features, requirements, and benefits. Understanding the differences between these two options can help you choose the one that best fits your needs.
What Are CALVET LOANS?
CALVET and VA Loans are provided by the California Department of Veterans Affairs (CalVet) and are specifically designed for veterans and active-duty service members residing in California. Here are some of the key characteristics of CALVET Loans:
- CALVET Loan Programs are funded with Various Bond Funds issued by the State of California.
- State-Sponsored Program: CALVET Loans are managed by the California Department of Veterans Affairs. This state-level oversight means that the state of California is responsible for the administration and management of these loans.
- Interest Rate Benefits: One of the most attractive features of CALVET Loans is their lower interest rates compared to many conventional loans. This is due to an interest rate subsidy provided to eligible veterans, which can make homeownership more affordable.
- Flexible Qualification Criteria: CALVET Loans often have more lenient eligibility criteria compared to traditional mortgages ,including Conventional, FHA and VA Loans provided by banks and mortgage companies. Not only veterans and active-duty service members, but some members of the National Guard and Reserves may also qualify.
- No Down Payment Option: Certain CALVET Loan programs offer zero-down-payment options, making it easier for eligible borrowers who might not have saved enough for a down payment.
- Funding Fee: CALVET Loans come with a one-time funding fee that varies depending on your military service, and whether it’s your first time use of your VA loan benefit. Veterans with a 10% or greater service-related disability rating are exempt from this funding fee.
Key Differences
Key Differences Between CAL Vet Loans and VA Loans:
- Administration: CALVET Loans are administered by the State of California, while VA Loans are federally managed by the U.S. Department of Veterans Affairs.
- Eligibility Area: CALVET Loans are only available to veterans and active-duty service members living in California. In contrast, VA Loans are available nationwide.
- Interest Rate Benefits: CALVET Loans often include an interest rate subsidy, making them potentially more affordable for eligible borrowers. VA Loans do not have this subsidy but still offer competitive rates.
- Interest Rate Flexibility: CALVET Loans generally offer a set rate for each loan product, whereas VA Loans provide more flexibility in choosing rates based on factors like upfront costs and ongoing rates.
- Funding Sources and Risks: CALVET Loans are funded and backed by the state of California, which assumes the financial risk. VA Loans, however, are backed by the federal government, and the U.S. Department of Veterans Affairs guarantees a portion of the loan to reduce lender risk.
- Qualification Criteria: CALVET Loans might offer more flexible eligibility criteria, including a broader definition of qualifying military service. VA Loans have more specific federal eligibility requirements, including minimum service periods.
- Funding Fee Differences: CALVET and VA Loans both typically require a funding fee that can vary depending on different factors like military service history, prior use of the VA loan benefit and VA Service Related Disability Rating.
- Available Loan Types: CALVET Loans offer multiple loan types, such as fixed-rate mortgages, adjustable-rate mortgages, and down payment assistance loans. VA Loans are more limited to fixed-rate and adjustable-rate mortgages.
- Home Title Requirements: With CALVET Loans, the veteran holds equitable title, which is fully released once the loan is paid off. The deed is recorded to the State of California and a Recorded Contract of Sale is issued to the Veteran. Upon payoff of the loan, a deed is issued to the Veteran. For VA Loans, the buyer owns the home outright upon purchase, with a deed of trust recorded against the title.
Which Loan is Right for You?
Choosing between a CALVET Loan and a VA Loan depends on your specific needs and circumstances:
- Location: CALVET Loans are exclusive to California residents. If you live outside of California, a VA Loan is the better choice.
- Interest Rate Preferences: CALVET Loans may be more appealing if you prefer fixed interest rates without the flexibility to adjust them. VA Loans offer more options for varying interest rates, based on fees and allowable credits towards closing costs.
- Eligibility and Service History: Consider your military service history and whether you meet the eligibility requirements for either program.
- Down Payment Needs: Both programs offer zero-down-payment options, making homeownership more accessible. Your choice may depend on your financial situation and down payment preferences.
- Closing Costs Options: CALVET loans have mandatory seller fees that are Not Allowed to be paid by the Veteran. VA loans allow Veteran to pay these same fees as origination costs, thus reducing or eliminating fees CALVET requires to be paid by the seller. Both CALVET and VA Loans allow seller to credit Veteran for closing costs fees up to a maximum of 4% of purchase price. Gifts to Veteran towards closing costs from an eligible relative are allowed up to 100% of the actual closing costs, not to exceed 4% of purchase price.
Conclusion
Both CALVET Loans and VA Loans provide excellent opportunities for veterans and active-duty service members to achieve homeownership. While CALVET Loans offer specific benefits tailored to California residents, VA Loans provide a robust, federally-backed option available nationwide. Evaluate your location, eligibility, and financial goals to determine which loan best meets your needs and helps you take the next step toward owning your dream home