Would you like to make a good deal even better?
You can do that if you know how to get the best rate on a VA loan.
If you are a current or former member of the United States military, you might be eligible for a VA loan. These loans have helped millions of veterans and service members qualify for a home loan at a reasonable rate. The most savvy of these borrowers, though, know that there is extra money to be saved with some smart shopping for their loans.
How to Get the Best Rate on a VA Loan
VA loans have certain built-in advantages. Besides making it easier to get approved, they are available with no down payment and require none of the mortgage insurance that is customary on conventional loans without high down payments.
Those are all excellent features, but you can do even better by knowing a few key tips for how to get the best rate on a VA loan:
- Work on your credit. VA loans provide lenders with a guarantee against default, but lenders benefit the most if repayment goes as planned. In other words, a borrower with a good credit rating is going to be viewed as less risky than someone with mediocre credit, and thus might get a better mortgage rate. One of the first steps you should make when you are thinking of buying a home is to check your credit history, so that you will have time to correct any mistakes and possibly clear up some problems before you start applying for loans.
- Ask whether a down payment would make a difference. While VA loans don't require a down payment, loans with a substantial amount of money down are generally considered less risky than those with no money down. A down payment might qualify you for a better rate, so it is at least worth asking about.
- Consider whether you can afford a shorter term. 15-year loans tend to have significantly lower rates than 30-year loans. If you can afford the higher monthly payments that come with a shorter loan term, it can save you a lot over the life of the loan.
- Make accelerated payments when you can. Even if you don't feel you can afford the higher payments of a shorter loan, you might have some months where you can afford to pay a little extra. VA loans have no penalty for early payment, so accelerating your repayment schedule when you can is a good way to knock some interest payments off the back end of the loan.
- Shop around. VA loans may be backed by the government, but they are issued by independent lenders. This means you have choices, and if you shop around you will probably find that some of these choices offer lower rates than others.
- Work with a lender that is used to VA loans. While most lenders can probably get you a VA loan, not all are approved by the VA, and not all of them routinely make VA loans. This program requires some special documentation, so you are best off with a lender who knows the drill. That way, things will go smoothly and you won't miss a rate opportunity because a lender unfamiliar with the program bungled the paperwork.
Don't Forget About Refinancing
VA loans are not just for buying a home; you can also use them to refinance. In fact, if you are refinancing to lower your interest rate or to switch from an adjustable to a fixed-rate loan, you may qualify for a streamlined program which requires no new appraisal of the property or credit check.
If you are looking to refinance a VA loan, here are a couple tips for increasing your savings:
- Don't automatically refinance with your original lender. You have just as much opportunity to shop around when refinancing as you did when you got your original loan, so don't feel limited to refinancing with the same lender.
- Consider refinancing to a shorter term. If you have already paid several years off of your mortgage, a shorter-term new loan might be a better fit with the time remaining on your original loan, and is likely to earn you a lower interest rate.
Finally, if you are wondering whether all these money-saving techniques are worthwhile, run some quick numbers on a mortgage calculator to see how much you can save over the course of 15 or 30 years just by shaving a few basis points off of a loan rate. Now think about that amount of money in the context of the hour or so of extra effort it might take you to get a better rate on your VA loan, and you may find that this could be the most lucrative hour you ever spend.