What is the Difference Between a CAL Vet Loan and a VA Loan?

When it comes to financing your dream home, there are various options available, each tailored to different needs and circumstances. For veterans and active-duty service members in California, two common choices are the CAL Vet Loan and the VA Loan. While both loans aim to assist military personnel in achieving homeownership, they have distinct features and eligibility criteria. In this comprehensive guide, we'll explore the key differences between CAL Vet Loans and VA Loans to help you make an informed decision about which one suits your unique situation.

Understanding CAL Vet Loans

The California Department of Veterans Affairs (CalVet) offers CAL Vet Loans as a housing assistance program specifically designed for veterans and active-duty service members residing in California. These loans are intended to provide affordable homeownership opportunities to those who have served in the military. Here are some essential features of CAL Vet Loans:

• State-Level Program: CAL Vet Loans are administered at the state level by the California Department of Veterans Affairs. This means that the state of California, not the federal government, is responsible for overseeing and managing these loans.
• Interest Rate Subsidy: One of the most attractive features of CAL Vet Loans is the interest rate subsidy. These loans often come with lower interest rates compared to conventional mortgage loans. The interest rate subsidy can make homeownership more affordable for eligible veterans.
• Flexible Eligibility Requirements: CAL Vet Loans typically have more flexible eligibility criteria than traditional mortgage loans. Veterans, active-duty service members, and certain members of the National Guard and Reserves may qualify.
• No Down Payment Option: Some CAL Vet Loan programs offer a zero-down-payment option, allowing eligible borrowers to purchase a home without making a down payment. This can be a significant advantage for those who may not have substantial savings.
• Competitive Terms: CAL Vet Loans usually offer competitive loan terms, such as fixed-rate mortgages, adjustable-rate mortgages, and even CalHFA ZIP loans, which provide down payment assistance.

Understanding VA Loans

VA Loans, on the other hand, are a nationwide program backed by the U.S. Department of Veterans Affairs. These loans are available to eligible veterans, active-duty service members, and certain members of the National Guard and Reserves across the United States. Here are the key features of VA Loans:

• Federal Program: VA Loans are a federal program administered by the U.S. Department of Veterans Affairs. While the VA sets the guidelines for these loans, they are issued by private lenders, such as banks and mortgage companies.
• No Private Mortgage Insurance (PMI): One of the standout benefits of VA Loans is that they do not require private mortgage insurance, even with no down payment or a minimal one. This can lead to substantial savings over the life of the loan.
• Zero Down Payment: VA Loans offer the advantage of zero down payment for eligible borrowers. This can make homeownership more accessible for veterans who may not have significant savings for a down payment.
• Competitive Interest Rates: VA Loans typically feature competitive interest rates. While the rates may vary depending on market conditions and the lender, they are often favorable for eligible borrowers.
• Funding Fee: VA Loans may come with a one-time funding fee, which helps offset the cost of the loan program. The fee amount varies based on factors like your military service and whether you've used your VA loan benefit before.

Differences Between CAL Vet Loans and VA Loans

Now that we've outlined the basic features of CAL Vet Loans and VA Loans, let's delve into the key differences between the two programs:

1. Administration:

CAL Vet Loans are administered by the California Department of Veterans Affairs, while VA Loans are managed at the federal level by the U.S. Department of Veterans Affairs.

2. Geographic Eligibility:

CAL Vet Loans are exclusively available to veterans and active-duty service members residing in California.

VA Loans are available nationwide, providing opportunities for eligible veterans and service members regardless of their location.

3. Interest Rate Subsidy:

CAL Vet Loans often feature interest rate subsidies, making them more affordable for eligible borrowers.

VA Loans do not come with interest rate subsidies, but they generally offer competitive interest rates.

4. Interest Rate Flexibility:

CAL Vet loans typically assign a rate for each loan product

VA Loans offer a range of interest rates based on many factors, often granting borrowers some flexibility with selecting the desired combination of rate and associated costs (i.e. higher rate, lower upfront cost vs. lower rate, higher upfront costs)

5. Funding Source:

CAL Vet Loans are funded by the State of California, which means the state assumes the financial risk associated with these loans.

VA Loans are backed by the federal government, with the U.S. Department of Veterans Affairs guaranteeing a portion of the loan. This VA guarantee reduces the lender's risk.

6. Eligibility Criteria:

CAL Vet Loans may have slightly more flexible eligibility criteria, including a broader definition of qualifying military service.

VA Loans have specific eligibility requirements set by the federal government, including minimum service periods.

7. Funding Fee:

CAL Vet Loans typically require a funding fee.

VA Loans may require a one-time funding fee, which varies based on factors like your military service and whether you've used your VA loan benefit before.

8. Available Loan Types:

CAL Vet Loans offer various loan types, including fixed-rate mortgages, adjustable-rate mortgages, and CalHFA ZIP loans.

VA Loans primarily offer fixed-rate and adjustable-rate mortgages.

9. Title to the Home:

CAL Vet Loans require Veteran to hold equitable title, which is released in full to borrower upon full repayment of loan.

VA Loans apply the traditional standard for title to home, in which ownership of home fully transfers to buyer at time of sale, and a deed of trust in favor of the lender is recorded against the title to the home.

Choosing Between CAL Vet Loans and VA Loans

The choice between a CAL Vet Loan and a VA Loan depends on your specific circumstances, location, and preferences. Here are some considerations to help you decide:

• Location: If you reside in California, CAL Vet Loans could be a great option due to their tailored benefits. While California residents have a choice between CAL Vet and VA Loans, if you live outside California, a VA Loan is the suitable choice.
• Interest Rate: If you don’t require interest rate flexibility  and live in California, CAL Vet Loans may be more appealing. Otherwise, VA Loans offer competitive rates.
• Eligibility: Consider your military service history and whether you meet the eligibility requirements for either loan program.
• Down Payment: Both CAL Vet Loans and VA Loans offer zero-down-payment options, making homeownership more accessible. Evaluate your savings and down payment preferences.

In conclusion, both CAL Vet Loans and VA Loans provide valuable opportunities for veterans and active-duty service members to achieve homeownership. While CAL Vet Loans are exclusive to California residents and offer state-level benefits, VA Loans are available nationwide and backed by the federal government. Carefully consider your location, eligibility, and financial goals to choose the loan program that best suits your needs. Whichever option you select, homeownership as a veteran or service member is within reach, thanks to these beneficial loan programs.