VA loans have some of the most competitive interest rates on the market because of the VA loan guarantee. They are historically lower than conventional loan rates, but your rate varies based on your qualifying factors and where you get the loan.
The VA doesn’t set VA loan interest rates – each lender chooses the rate based on the market at the time you apply for the loan.
Factors that Affect your VA Loan Interest Rate
Like we said, the VA doesn’t set your interest rates – the market does, but your qualifying factors play a role.
Here’s how you can ensure you get the lowest interest rate possible.
Your Credit Score
Even though the VA doesn’t have a minimum credit score requirement, the higher your credit score is, the lower the rate lenders can offer.
You don’t need perfect credit, but if you can clean it up and make sure you don’t have any late payments, credit lines with over 30% of your total credit line outstanding, and that you don’t have any recent public records like foreclosures or bankruptcies in the last couple of years.
Try to avoid opening any new credit lines or closing old credit lines. Keep your credit score as high and as stable as possible when applying for a VA loan.
Your Loan Payment History
If this isn’t your first mortgage, we’ll look at your loan payment history. It’s best if you have on-time payments for all mortgage loans. If you don’t have a mortgage, we may look at your rental payment history to ensure you can handle housing payments. The better your housing payment history is, the lower the interest rate you’ll get.
VA loans are available in 15 and 30-year terms. Most people choose the 30-year term because the payments are more affordable. If you can afford a shorter term, though, you’ll have a better chance of securing a lower interest rate.
The less time you borrow money, the less risky it is for the lender and the more money they’ll have to lend to other borrowers for more profits.
The type of VA loan you borrow also determines your interest rate. For example, a cash-out refinance is riskier for lenders than a purchase loan, so you’d likely get the highest interest rate for a cash-out to refinance than a purchase loan.
VA IRRRL mortgages usually offer low-interest rates, but jumbo loans (loan amounts that exceed the conforming loan limit) often have higher interest rates.
Buying your VA Loan Rate Down
If you are quoted an interest rate that is higher than you hoped to get for your VA loan, you may be able to buy it down.
You buy VA loan rates down with discount points. One discount point is equal to 1% of your loan amount, or $1,000 for every $100,000 you borrow. Each lender discounts rates differently, but one point usually lowers a rate around 0.25%.
Discount points are a part of your closing costs and will be due at the closing. You can ask the seller to help with the cost or you may be able to roll it into your loan amount.
Locking in your VA Loan Interest Rate
When you’ve found a home and are in the midst of VA loan underwriting, you must lock your interest rate. This is what guarantees your rate, no matter what happens to the market. If you lock in a rate and they increase, you still get the lower rate. On the flip side, if you lock a rate and they decrease, you still must pay the higher rate unless you have a float-down provision that allows you to pay a fee upfront to get the lower rate.
Most borrowers lock their rate for 30 to 60 days, but every borrower is different. The less time you lock the rate for, the less it costs, but make sure you lock it for a long enough period that gets you through your closing date.