How are VA Loan Rates Determined | Getting the Best VA Loan Rates

How do VA Loan
Rates Differ?

Getting the Best VA Loan Rates

Buying a home is a substantial financial commitment. So, of course, you want to find the best VA loan rates available.

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When you are looking to buy a home, one of the most important factors is the type of mortgage you receive. For those members of the US Armed Forces or prior members, getting a mortgage through the VA could be a great option.

VA home loans provide borrowers with several different benefits. VA home loans are fully guaranteed by the VA, which gives the providers of the loans another source of repayment if the loan goes into default.

Because of this, VA home loan providers have lower requirements for borrowers to meet. For example, the VA offers loans with no money down, has lower income level requirements, and does not require a high credit score.

While VA home loans have lower requirements, they can be more expensive for borrowers. On average, home loans from the VA have higher interest rates for several different reasons. The actual rate that you will receive on your VA home loan will depend on a few different factors:

Your Credit Score Affects VA Loan Rates

The first factor determining the rate you receive on your VA home loan is your credit score. While the VA usually only requires a credit score of 620, those looking for a more affordable interest rate will need a higher credit score than the minimum.

For those looking for the best VA loan rates possible, a credit score of 720 or higher will be required. While you must have a good credit score, your interest rate could be improved if you have a co-signor that also has a good credit score.

Down Payment

When you are looking to get a loan through the VA, another factor that will impact your credit score is your level of down payment. In most cases, the VA will approve a loan with as little as zero percent down. However, the VA and the lender still consider these loans riskier. Because of this, you will be charged a higher interest.

If you are looking for the lowest rate and fee structure possible, putting down at least twenty percent would be beneficial. This will also reduce your initial principal balance, reducing your overall payment even further.

Income Thresholds

Another benefit of getting a loan through the VA is that they have looser income requirements for borrowers. Most traditional lenders want borrowers to have a debt-to-income ratio of 33% or less. VA home loan providers will offer loans with much higher ratios.

While they are willing to offer these riskier loans to borrowers with lower income levels, these VA loan rates are higher to compensate for the additional risk. Those who choose to buy more affordable homes will be offered a lower overall interest rate.

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