How Do VA Loan Rates Differ?

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Getting the Best VA Loan Rates

VA Loan RatesBuying a home is a very big financial commitment. So of course you want to find the best VA loan rates available.

When you are looking to buy a home, one of the most important factors involved is the type of mortgage that you receive. For those that are members of the US Armed Forces, or are 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 that will determine the rate that you receive on your VA home loan is your credit score. While the VA usually only requires a credit score of 620, those that are looking for a more affordable interest rate will need to have a higher credit score than the minimum.

For those that are looking for the best VA loan rates possible, a credit score of 720 or higher will be required. While it is important that you 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 the level of down payment that you have. In most cases, the VA will approve a loan with as little as zero percent down. However, these loans are still considered riskier by the VA and the lender. Because of this, you will be charged a higher interest.

If you are looking for the lowest rate and fee structure possible, it would be beneficial for you to put down at least twenty percent. This will also reduce your initial principal balance, which will reduce 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 to have a borrower 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 levels of income, these VA loan rates are higher to compensate for the additional risk. Those that choose to buy more affordable homes will end up being offered a lower overall interest rate.

 

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