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Summary: On this page, you’ll find an overview of California VA loan limits, rules and requirements. This page was updated in 2020 to account for some program changes that were implemented in 2019.
VA loans are a popular financing option among home buyers in California. There are two primary reasons for this. For one thing, the state has a large military population, most of whom are eligible for this program. Secondly, California VA loans offer benefits you just won’t find from other mortgage products.
Here’s the biggest benefit. This unique loan program allows borrowers to buy a house with no money down, while avoiding mortgage insurance at the same time.
But there are some program requirements you should know about, as a borrower. So let’s look at the current California VA loan limits, rules and requirements for borrowers.
California VA Loan Limits Explained
Let’s start with some good news for borrowers considering this program. The VA loan limits that have been in place for many years were eliminated for some borrowers, as part of a broader act passed by Congress.
The Blue Water Navy Vietnam Veterans Act of 2019 implemented a number of changes that mostly apply to veterans of the Vietnam War. But it also did something that will affect anyone who uses a VA loan. This act eliminated the VA loan limits for California and the rest of the nation, for certain borrowers.
As it states on the Department of Veterans Affairs website:
“VA-guaranteed home loans will no longer be limited to the Federal Housing Finance Agency (Federally-established) Confirming Loan Limits. Veterans will now be able to obtain a no-down payment home loan in all areas, regardless of loan amount.”
But there’s an important distinction to be made here. Borrowers who have used this program in the past might have what’s known as “remaining entitlement” (as opposed to the full entitlement that first-time VA loan borrowers have).
Full: If you’ve never used a VA loan before, or if you’ve used one but paid it off in full through the sale of the property, you probably have “full entitlement” so there is no loan limit for you.
Remaining: If you still have an active VA loan in place on a property you own, or if you’ve paid it off but still own the house, you probably have a “remaining entitlement” and the loan limits do still apply.
Here’s a screenshot from the VA’s website that further explains who falls into the “remaining entitlement” category:
Prior to this change, all borrowers who used this program to buy a home in California encountered VA loan limits. If they wanted to borrow more than that amount, they had to make a down payment for part of the difference. But now, in 2020 and beyond, those California VA loan limits only apply to borrowers with remaining entitlement as described above.
For borrowers with full entitlement who have no loan limits, it’s up to the mortgage lender to determine how much you can borrow. And we’ll talk about how they do this in just a moment.
Minimum Requirements for Borrowers
The VA loan program was created to reward military service members and veterans. It dates back to the 1940s, the World War II era.
The core focus of this program is to allow home buyers to purchase a home with no down payment. This eliminates what is often the biggest hurdle or obstacle to homeownership. Military members and veterans who qualify for a VA loan in California can purchase a house with no money down, by financing 100% of the purchase price.
With that being said, there are some rules and minimum requirements for California VA loans. Here’s an overview of those requirements.
1. You must be eligible for the program.
To qualify for this mortgage program, borrowers must meet the minimum eligibility criteria established by the Department of Veterans Affairs. Generally speaking, most military members and veterans qualify for the program. The full eligibility requirements can be found on the Department’s website with a quick Google search.
You could be eligible for a VA loan in California by meeting one or more of the following requirements:
- you’ve served 90 consecutive days on active duty during wartime, OR
- you’ve served 181 days on active duty during peacetime, OR
- you have 6 years of service in the National Guard or Reserves, OR
- you were National Guard or Reserves but served at least 90 days on active duty during the Gulf War, OR
- you’re the spouse of a service member who died in the line of duty or as the result of a service-related disability.
If you meet any one of these requirements, you’re probably eligible.
Again, this is just a quick overview of the minimum eligibility requirements for a California VA loan, as of 2020. We encourage you to visit the Department of Veterans Affairs website to learn more about these requirements. They updated their website in 2020, making it better organized and more useful for borrowers.
2. You’ll need a Certificate of Eligibility (COE).
It’s not enough to tell a mortgage lender you’re eligible for a VA loan in California. You must also obtain an official Certificate of Eligibility (COE) from the Department of Veterans Affairs.
True to its name, this document certifies to the mortgage lender that you do in fact meet the minimum eligibility requirements for a VA loan.
You can request a COE directly through the Department of Veterans Affairs website. Veterans need a copy of their discharge or separation papers (DD-214). Active-duty personnel need a statement of service from their commanding officer, adjutant, or personnel officer.
The mortgage lender can also request this document on your behalf, by using the VA’s web-based Loan Guaranty portal.
3. You need to have sufficient income.
Income is one of the most important requirements for California VA loans. The key takeaway here is that you must have sufficient income to keep up with your monthly payments, along with all of your other recurring expenses.
When you apply for a VA-guaranteed mortgage loan, the lender will review your debt-to-income ratio, or DTI. As the name suggests, this ratio compares the amount of money you earn each month to the amount you spend on all of your various debts.
There is no hard-and-fast rule, limit or requirement for DTI ratios on California VA loans. But most lenders set the bar somewhere between 43% and 50%. Some offer loans to borrowers with DTI ratios in excess of 50%. It varies.
The bottom line: If your combined monthly debts (including the mortgage payment) use up significantly more than 50% of your gross monthly income, you might have trouble qualifying for a VA loan in California.
Note: The Department of Veterans Affairs does not set a limit for debt-to-income ratios. They recommend that lenders set a limit of 41%. But that number is not written in stone. It’s generally up to the mortgage lender to make the final call.
When a borrower’s DTI ratio is above 41%, the VA encourages lenders to apply “close scrutiny,” along with a statement “justifying the reasons for approval.”
The debt-to-income ratio and other California VA loan requirements are designed to prevent borrowers from taking on more of a mortgage debt than they can afford. This in turn helps prevent mortgage default, foreclosure, and financial losses incurred by the lender and the Department of Veterans Affairs. It’s a protective measure for all parties involved.
4. The home you’re buying has to be appraised.
All homes being purchased with a VA loan must be appraised by a professional and licensed appraiser. This is another key requirement for California VA loans.
The appraiser will evaluate the home being purchased in order to determine its current market value. The goal here is to ensure that the buyer is not paying more for a property than it’s actually worth in the current market. This protects the lender and the VA alike.
The appraiser will evaluate the home being purchased and make comparisons to similar properties that have been sold in the same area recently. These are what real estate agents and mortgage professionals refer to as comparable sales, or “comps.”
After all of this, the appraiser will issue an appraisal report with an estimated value of the home. The appraiser will also make sure the property meets the VA’s minimum requirements. Most of these property requirements are related to the health and safety of the homeowner.
This article provides a basic overview of California VA loan limits, rules and requirements for borrowers. This is not meant to be an exhaustive or all-inclusive list of guidelines and requirements. Instead, it’s designed to give you a sense of the basic requirements for VA loans. Something like that. To learn more about the subject, you can speak to a VA approved mortgage lender or refer to the Department Of Veterans Affairs Website.