5 Things to Understand About VA Home Loan Interest Rates

VA loans are nonconventional home loans that are designed to make it easier for current and past military personnel and their families to become homeowners. Because they are guaranteed by the U.S. Department of Veterans Affairs (VA), VA loans are lower risk for lenders, which enables them to offer qualified borrowers less restrictive loan requirements.

Another attractive benefit of VA loans is that they often offer lower interest rates than many other types of home loans. However, before you run to your nearest mortgage lender to submit a loan application, there are a few factors to consider.

5 Things You Need to Know About VA Home Loan Interest Rates

Here are five important facts about VA home loan interest rates that every homebuyer needs to weigh when shopping for the mortgage that is right for them:

1. VA home loan interest rates are typically lower than conventional loan interest rates.

Historically, VA loans have offered the lowest average fixed interest rates on the market—typically 0.5-1 percent lower than conventional rates. Qualifying for a lower-interest VA loan can save service members tens of thousands of dollars over the life of the loan and reduce your monthly mortgage payment.

2. The VA doesn’t set interest rates—lenders do.

Although VA loans offer lower interest rates, it’s actually lenders that decide the rate. Interest rates are based on the mortgage bond market at the time a borrower applies for the loan. Because the market is always changing, rates can fluctuate multiple times a day.

3. You must qualify for a VA loan. 

VA home loans have service requirements as well as standard mortgage qualifications, such as credit score and debt-to-income ratio. The credit and debt requirements for VA loans are less stringent than those for conventional mortgages, but you will need to obtain a certificate of eligibility from the VA to prove military service.

4. You can buy down your VA home loan interest rate.

To lower your interest rate even further, eligible borrowers can buy down their VA loan interest rate using discount points. Each point costs 1 percent of the loan amount, or $1,000 for every $100,000 you borrow. Discount rates vary by lender, but in general, each point purchased lowers your interest rate by about 0.25 percent. 

5. You need to consider both interest rate and APR when comparing loan rates.

Although VA home loans offer competitive interest rates, you can’t assume they are always the best deal. When shopping around for a mortgage, be sure to look not only at the interest rate but also at the annual percentage rate (APR) and closing cost estimates to make sure you are comparing loans accurately.

Benefits and Drawbacks of VA Home Loans

VA home loans help military personnel who may not otherwise qualify for a mortgage become homeowners. Although VA loans have many checkmarks in the benefits column, there are also a handful of drawbacks potential applicants need to be aware of.

What are the benefits of a VA loan?

• No down payment
• No private mortgage insurance 
• Foreclosure protection
• Lenient credit requirements
• No loan limits
• No income restrictions
• Lender costs capped at 1 percent of the loan amount
• Options for no income verification/no appraisal refinance

What are the drawbacks of a VA loan?

• Borrowers must qualify based on military service
• Tougher appraisal requirements
• Longer wait in between refinancing than conventional loans
• VA funding fees up to 3.6 percent of the loan amount
• Higher appraisal costs than conventional or Federal Housing Administration loans
• Loans can’t be used to finance a second home or investment property

While not necessarily a drawback, it’s important to note that not all real estate agents are familiar with VA loans. The seller may need an experienced mortgage lender, such as the FFB team, to guide their agent through the process.

Types of VA-Backed Home Loans

The standard VA purchase loan isn’t always the right fit for every borrower.  Fortunately, there are several different types of VA home loans available for borrowers with other needs.

For homeowners who want to refinance their existing home, the VA provides multiple options, including interest rate reduction refinance loans that help veterans reduce their monthly mortgage payments or make them more stable and the cash-out refinance loan that allows veterans to take cash out of their home equity to pay off debt, pay for school, or take care of other needs.

Let a VA Loan Specialist Help You on Your Homebuying Journey

The path to a VA home loan can be a little hard to follow. But when you work with an experienced mortgage lender with deep knowledge of the process, you can be sure you are getting the lowest VA mortgage rates possible. 

FFB Mortgage Lenders is nationally recognized as one of the top VA lenders in the country. Our team has decades of experience helping borrowers navigate through special military circumstances, such as PCS transfers and finding the most competitive rates out there.

We know that there are a lot of misconceptions about who is eligible for a VA home loan, what the benefits are, and how difficult it is to qualify for this type of loan. So our VA home loan experts created a thorough—but straightforward—guide to help both new and experienced homebuyers understand why a VA home loan may be the perfect mortgage option for you. Get access to the full guide and learn more.