When it comes to buying a home, many people turn to government-backed mortgage loans to help them finance their purchase. Two of the most popular types of government mortgage loans are those offered by the Department of Veterans Affairs (VA) and the Federal Housing Administration (FHA). Here’s a closer look at each program and what you need to know.

VA Loans

VA loans are available to eligible veterans, active-duty service members, and surviving spouses who meet certain requirements. These loans are guaranteed by the VA, which means that lenders are protected against loss if the borrower defaults on the loan.

One of the main benefits of a VA loan is that no down payment is required, which can be a significant advantage for borrowers who are struggling to save for a down payment. Additionally, VA loans typically have more favorable interest rates and terms than conventional loans, which can save borrowers money over the life of the loan.

There are two main types of VA loans: purchase loans and refinance loans. Purchase loans are used to buy a home, while refinance loans are used to refinance an existing mortgage. Within these categories, there are several types of VA loans available:

VA Purchase Loans: These loans are used to buy a home and can be used to purchase a single-family home, condo, townhouse, or multi-unit property (up to four units). The maximum loan amount for a VA purchase loan in most areas of California is $822,375 for 2021. However, in certain high-cost areas, the maximum loan amount may be higher.

VA Cash-Out Refinance Loans: These loans allow borrowers to refinance their existing mortgage and take cash out of their home equity at the same time. The maximum loan amount for a VA cash-out refinance loan is generally 90% of the appraised value of the home.

VA Interest Rate Reduction Refinance Loans (IRRRLs): Also known as VA streamline refinances, these loans allow borrowers to refinance their existing VA loan into a new VA loan with a lower interest rate. There is no maximum loan amount for an IRRRL, but the new loan must be for the same property as the original loan and the borrower must demonstrate a net tangible benefit from the refinance.

To be eligible for a VA loan, borrowers must meet certain requirements, such as having served a certain length of time in the military, meeting credit and income requirements, and obtaining a Certificate of Eligibility (COE) from the VA.

FHA Loans

FHA loans are available to a wide range of borrowers, including first-time homebuyers and those with lower credit scores or smaller down payments. These loans are insured by the FHA, which means that lenders are protected against loss if the borrower defaults on the loan.

One of the main benefits of an FHA loan is that the minimum down payment is only 3.5%, which can make it easier for borrowers to qualify for a loan. Additionally, FHA loans may have more flexible credit requirements than conventional loans, which can be helpful for borrowers who have had credit issues in the past.

There are several types of FHA loans available, including:

FHA Purchase Loans: These loans are used to buy a home and can be used to purchase a single-family home, condo, townhouse, or multi-unit property (up to four units). The maximum loan amount for an FHA purchase loan in most areas of California is $765,600 for 2021. However, in certain high-cost areas, the maximum loan amount may be higher.

FHA Cash-Out Refinance Loans: These loans allow borrowers to refinance their existing mortgage and take cash out of their

home equity at the same time. The maximum loan amount for an FHA cash-out refinance loan is generally 80% of the appraised value of the home.

FHA Streamline Refinance Loans: These loans allow borrowers to refinance their existing FHA loan into a new FHA loan with a lower interest rate. Unlike VA streamline refinances, there is no requirement to demonstrate a net tangible benefit from the refinance.
To be eligible for an FHA loan, borrowers must meet certain requirements, such as having a minimum credit score of 580, a maximum debt-to-income ratio of 43%, and a down payment of at least 3.5%. Borrowers must also pay an upfront mortgage insurance premium (MIP) and an annual MIP for the life of the loan.

Max Loan Amounts in High-Cost Areas of California

As mentioned earlier, the maximum loan amount for VA and FHA loans in California varies based on the location of the property. In high-cost areas of California, such as San Francisco and Los Angeles, the maximum loan amounts are higher than in other areas of the state.

For VA loans in high-cost areas of California, the maximum loan amount for 2021 is $1,094,625. This is an increase from the 2020 maximum loan amount of $765,600, and it reflects the higher home prices in these areas.

For FHA loans in high-cost areas of California, the maximum loan amount for 2021 is $822,375. This is an increase from the 2020 maximum loan amount of $765,600 and reflects the higher home prices in these areas.

It’s important to note that these maximum loan amounts are subject to change each year, so borrowers should check with their lender or the VA/FHA for the most up-to-date information.

Conclusion

Both VA and FHA loans can be a good option for borrowers who meet the eligibility requirements and want to take advantage of the benefits of a government-backed loan. VA loans offer no down payment and more favorable terms, while FHA loans offer a lower minimum down payment and more flexible credit requirements.

In high-cost areas of California, the maximum loan amounts for both VA and FHA loans are higher than in other areas of the state, which can be helpful for borrowers who are looking to purchase a home in these areas.

Regardless of which type of loan a borrower chooses, it’s important to shop around and compare offers from different lenders to find the best deal. Borrowers should also consider their long-term financial goals and make sure that a government-backed mortgage loan fits into their overall financial plan.