How to Get a Great VA Loan Rate

According to Own Up research, there’s a wide range of rates for VA loans, even though the U.S. Department of Veterans Affairs’ website says the VA Home Loans program “guarantees a portion of the loan, enabling the lender to provide [the borrower] with more favorable terms.”

However, some lenders may overcharge on VA loans, claiming they are more challenging than other types of loans to process. This is why it’s critical to shop around with different lenders. In fact, Own Up data from 2022 shows that among the top 20 VA lenders, six lenders offered average rates that were higher than the average rates offered to all borrowers.

In a nutshell, our research shows that veterans have become targets of unfair lending practices, but it doesn’t have to be that way. In fact, there are several steps you can take to improve your chances of finding the VA loan that works for you. In addition to shopping around for different lenders, you can learn about the various VA loan subtypes, take some time to improve your personal finances, and consider a larger down payment if you’re looking for better rates.

Learn About Types of VA loans

As with other mortgages, VA loans come in both fixed-rate and adjustable-rate varieties with different term lengths. Fixed-rate mortgages have one consistent interest rate across the life of the loan. Adjustable rate mortgages, or ARMs, tend to have a fixed period for a specified number of years; once that period expires, the rate can adjust according to the rules specified in the loan contract.

Beware: ARMs tend to start with more affordable rates than similar fixed-rate mortgages, but may have higher rates once the fixed-rate period expires. You’ll also need to choose between different loan lengths, whether 15-year, 30-year, or otherwise. Longer loan terms tend to have more affordable monthly payments but you’ll find yourself paying more interest overall.

The VA website also talks about different types of loans you can peruse:

1. A VA direct home loan: With this type of loan, the VA serves as your actual lender.
2. A Native American Direct Loan: This is similar to the above, but it is for Veterans who are Native American or have a Native American spouse and is for buying, improving, or building a home on federal trust land.
3. Purchase loan: These loans typically do not require a down payment, have better interest rates and terms than private loans, and also do not carry mortgage insurance requirements (as many lenders do if a borrower cannot come up with a 20% down payment). There are other perks, as well, but overall, these types of loans help borrowers who don’t have a lot of cash on hand during the home buying process.
4. An interest-rate reduction refinance loan: These loans can be helpful if you are trying to lower your monthly payments. These types of loans let you replace your current mortgage loan with a new one that has different terms.
5. Cash-out refinance loan: This is similar to an interest-rate reduction loan, but it lets you take cash out from the equity you have built in your home.

Each of the above loan types has certain eligibility requirements, so speak to your mortgage advisor if you have questions about your eligibility.

Work on Your DTI and Credit Score

While VA loans are designed to offer better terms to service members than they might otherwise be able to access, a prettier financial picture will allow for even better rates.

While VA loans may come with looser credit requirements than other types of loans, a solid credit history can still be your friend. Lenders look at your DTI, or debt-to-income ratio, when deciding what loan terms they’re willing to offer. If you’re having trouble finding affordable rates, consider waiting until after you can pay down some of your debts. Offloading debts can help to improve your credit report and FICO score, which are additional factors that potential lenders will consider when determining your VA mortgage rates.

Consider a Larger Down Payment

VA loans are unique in that they do not require down payments “as long as the sales price isn’t higher than the home’s value;” however, that doesn’t mean you are totally off the hook for upfront costs.

Typically, VA loans require a one-time payment – or funding fee – that is required to close the loan. The amount depends on your loan type and loan amount, and you have the option to pay it off during closing or over time with your other loan costs.

Regardless of whether you come up with a down payment, you’ll access better rates and lower costs over the life of the loan if you’re willing to put down money upfront.

The Bottom Line

You’ve served your country and you deserve the best mortgage rate possible. Don’t be afraid to ask your real estate agent or mortgage broker any questions you may have. With some research, planning, and patience, you’ll be a successful veteran of the mortgage approval process.