Does a VA loan make sense in San Diego?

San Diego might have one of the biggest concentrations of military in the nation, but they aren’t settling here as much as some areas.

The top places for VA loan purchase loans in the first half of 2021 were Washington, D.C., Virginia Beach and San Antonio, said a study from loan servicer Veterans United. The San Diego metropolitan area was ranked 11th most for VA loans.

VA loans are mortgages guaranteed by the U.S. Department of Veterans Affairs and do not typically require a down payment. It can be used by veterans and active service members. The VA says roughly 90 percent of its loans are made without a down payment.

After sales slowed dramatically in the first half of 2020 because of the pandemic, almost all metro areas experienced a substantial rise in loans to start 2021. There were 3,237 VA loans used in San Diego metro in the first six months, an 8.2 percent rise from the year before. The areas that grew the most were New York-Northern New Jersey (up 39.14 percent), Anchorage (33.2 percent) and Savannah (28.92 percent).

Chris Birk, a vice president at Veterans United Home Loans, said one reason loans could be fewer in San Diego is the high number of active service members means the population is more transient. For example, Washington, D.C., consistently has the most VA loans because more active military and veterans are there permanently. Another factor is the growth of home prices in San Diego that can make it more difficult for some veterans to buy.

The median price of a home in San Diego County reached a record of $725,000 in May, a 23 percent gain in a year. For an active duty member who is currently serving, buying a home at the median home price with no down payment, using a 30-year loan term, could be more than $4,000 a month.

Active duty military in San Diego get a monthly housing allowance that could make the payment more palatable. The lowest ranked member in San Diego gets $2,691 a month with dependents and $2,019 without. The highest ranked officer gets $3,828 a month with dependents and $3,330 without. Another thing that helps with the cost is VA loans do not require private mortgage insurance as many other mortgages with low down payments do.

Samantha O’Brien, a real estate agent with PorchLight in University Heights, said this last year has made things more difficult for some military members as housing prices have shot up. She said she has worked with service members who were looking for a place in San Diego but decided it would make more sense to go somewhere else where they can get more bang for their buck.

“The ones that don’t end up purchasing, I hear, ‘I can go back to Texas and buy a bigger place’,” she said, “or ‘anywhere else in the U.S.’”

O’Brien said a lot of the people who decide to move to another state, despite being stationed here at the moment, are looking for space for families and typically like to have a little bit of land. She said many military members will decide to rent and wait to buy something out of the area when their service is over.

However, not everyone is rushing out of America’s Finest City. O’Brien said she has closed four VA loans in the last month that were a mix of younger service members buying condos and higher ranked members who bought properties with the intention of retiring here.

Tony Rector, a Coast Guard veteran, bought a $850,000 single-family home in the Del Cerro neighborhood in July with a VA loan. Since he no longer is active duty, he does not receive a monthly housing allowance. However, he said he plans to have three roommates and his job as a financer for a car dealership will help him to make the payments.

“It’s just a much better option all around,” he said of a VA loan. “That’s why it is a privilege for us.”

Unlike many military members who come from outside the area, Rector grew up in Lakeside and knew he didn’t want to leave — even if he could use that VA loan for a place out of state.

“It’s my city. I love it,” he said.

Another factor in possibly reducing the number of VA purchase loans in San Diego County is the growth of cash offers as competition for homes continues to be high. Jan Ryan, a RE/MAX agent based in Ramona, said sellers have rejected both VA loans and FHA loans (for first-time buyers) for cash buyers in many of her offer attempts.

While the seller is going to get the same amount of money, many local agents say sellers will go with cash offers to make sure the purchase closes escrow. It makes sense for sellers because the VA loan will require an appraisal, not required with a cash offer, so if the appraisal comes in below the asking price it is possible the loan won’t get approved.

Ryan said cash buyers, in her experience, might not always be the safest option. They are more likely than a military family to ask for concessions at the last minute or simply walk away.

VA loans are also used for refinancing, but probably favor veterans who have lived in San Diego for longer than many active service members. There was a 76.3 percent increase in refinances in San Diego for the first six months of this year, compared to the same time last year. It mirrors national trends of more refinancing loans than purchases during much of the pandemic.

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Most purchase loans in the first half of 2021

Washington-Arlington-Alexandria, DC-VA-MD-WV: 6,805

Virginia Beach-Norfolk-Newport News, VA-NC: 6,752

San Antonio, TX: 5,114

Dallas-Fort Worth-Arlington, TX: 4,658

Phoenix-Mesa-Scottsdale, AZ: 4,414

Atlanta-Sandy Springs-Marietta, GA: 4,197

Houston-Sugar Land-Baytown, TX: 3,735

Riverside-San Bernardino-Ontario, CA: 3,435

Tampa-St. Petersburg-Clearwater, FL: 3,397

Colorado Springs, CO: 3,395

San Diego-Carlsbad-San Marcos, CA: 3,237

Jacksonville, FL: 3,167

Las Vegas-Paradise, NV: 3,061

Seattle-Tacoma-Bellevue, WA: 2,468

Source: Veterans United