VA home loan rates move up and down just like conventional (non-government) mortgage costs do -- they are driven by factors like:
- Global economic events
- Competition between lenders
- Borrower's profile
- Type of loan selected
- Loan amount
- Down payment (or equity if refinancing)
- Points paid (the lower the rate, the higher the cost)
Controlling VA Home Loan Costs
Shoppers comparing current VA loan rates can control only some of those factors, but they should try to master every one that they can.
For example, making a slightly larger down payment (five percent as opposed to zero percent, for example) can drop closing costs significantly. So can choosing a loan that jibes with the buyer's expected tenure in the home -- if expecting to move in five-to-seven years, for example, the buyer might consider a 5/1 or 7/1 hybrid ARM with a significantly lower interest rate over a 30-year fixed loan. LendingTree's LoanExplorer on August 18, 2014 shows a rate of 3.616 percent for a 30-year fixed VA loan with zero down, but the 5/1 hybrid has an APR of just 2.379 percent.
Those who can put off buying for a few months while improving their credit scores can also realize substantial benefits. The chart below shows how VA loan rates are affected by credit scores and down payments.
Choosing to pay points (this is called "buying down" the rate) gets borrowers a lower interest rate, but isn't always the most cost-effective decision. In general, paying higher costs upfront makes more sense when the borrower expects to keep the loan for many years, but paying less upfront is smarter when the borrower expects to refinance or sell fairly quickly. Finally, comparing the rates and terms of several competing lenders is easy to do online and can save thousands or tens of thousands over the life of a loan -- in minutes.
How to Compare VA Home Loan Rates
Researchers from Stanford University found in 2012 (Diagnosing Consumer Confusion andSub-Optimal Shopping Eﬀort: Theory and Mortgage-Market Evidence) that buyers taking out $200,000 mortgages could save a median $2,664 simply by getting quotes from at least four competing lenders. Those who only dealt with one or two lenders left thousands on the table! It's easy to get current VA loan rates from multiple competing lenders at LendingTree. Users can simply complete one short form and receive quotes from up to five lenders.
Alternatively, homebuyers can check out LendingTree's LoanExplorer, where they can get real-time rates from competing lenders and pick the best one for their circumstances. Consumers should first input the property zip code, purchase price (or home value if refinancing), their down payment (or loan balance if refinancing) and their credit rating. Then they'd click the + More Options link and choose from the drop-down menu under "Eligible for VA loans?" That causes LoanExplorer to seek out VA loan options. These can be sorted by APR or interest rate to easily spot the best deals. Consumers can choose to see more details by clicking the + Details link before clicking to contact the lender.
Alternatively, borrowers can contact multiple lenders online, in-person or over the phone, request mortgage quotes in writing and go through them. It's important, however, that they do this is a very short time because mortgage rates and programs are subject to change without notice. Pricing is updated constantly, so a quote from Lender A at 8 am may not be reliably compared to another received from Lender B at 3 pm.
Getting Help from Sellers
Buyers can get lower VA home loan rates today by asking sellers to contribute toward closing costs instead of negotiating a price reduction. The VA allows sellers to contribute up to four percent of the sales price toward closing costs, and this amount could be used to lower the interest rate. It makes little difference for the seller to pay $8,000 in closing costs for a $200,000 house or to drop the price to $192,000, but that can really help a cash-strapped buyer.
However, if the buyer plans to sell the property fairly soon, perhaps in five years, the equation changes. In general, the option with lower closing costs is better when the expected tenure in the property is short Paying higher closing costs to get lower VA home loan rates makes sense when the buyer plans to keep the house and its mortgage for many years.
These are some strategies that homebuyers with VA eligibility can do to reduce their interest rates, and LendingTree can help with most of them.