Understanding VA Loan Interest Rate And APR

VA Loan Interest Rate And APR

Understanding VA Loan Interest Rate And APR

The reason why most Veterans go for VA mortgages is a long list of some astounding benefits associated with it. In addition to having a no down payment option, these home loans also offer the lowest interest rates. While the US Department of Veterans Affairs (VA) doesn’t set VA loan interest rate, they guarantee that these rates available are the lowest than any other conventional loan available in the market.

Who Decides The Rates?

Your VA-approved private lender sets an interest rate for you. These rates are calculated based on factors like current market conditions, borrowers’ financial conditions, mortgage rates, debt-to-income ratio, and the presence of enough residual income.

It is important to understand that a VA loan interest rate might change several times in a day and two different lenders might give you two entirely different quotes. Therefore, it is advisable to contact at least more than two lenders so that you can qualify for the lowest possible quote.

Factors determining VA interest rates are as follows- 

  1. Market conditions like inflation, cost of living, demographics etc.
  2. Borrower’s financial conditions like debt-to-income ratio, debt history, credit score.
  3. Type of loan (VA purchase loans or refinancing options like IRRRL or cash-out)
  4. Duration of loan (15 or 30-year)

Although the VA won’t require you to have any credit score, few private lenders might expect you to have a minimum score of 600-620. Having a considerable credit score can act as a plus point as it can decrease your VA loan interest rate.

How To Get Lower Interest Rates?

Although a VA loan interest rate depends upon certain involuntary factors, there are few things one can do to get quoted for a lower rate.

  • Improve your credit score by paying any pending credit card payments or overdue bills.
  • Try getting a quote from more than two lenders.
  • Make a down payment to get an even lower rate.
  • Choose a VA loan that matches your needs.

What Is Apr? 

APR or an Annual Percentage Rate is the total of all the costs associated with borrowing a VA mortgage. The costs included are your VA loan interest rate, origination fees, closing fees, discount points and other additional charges. APR can help you compare your interest rates.

Locking An Interest Rate

When you begin your pre-approval process, your private lender will quote you a specific interest rate. However, because a VA loan interest rate is constantly fluctuating, you can not set a particular rate in stone until you sign the purchase agreement. So, until the closing of the loan, your interest rate will be floating, meaning it might increase or decrease until the closing date. However, after coming under contract, you can ask your lender to lock the rate. Rate locking is considered valid for a period of 30 or 60 days. You can contact a regional office for a rate lock or ask your lender to get it done for you.

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