Top Tips for Getting the Best VA Mortgage Rates

Veterans of the military, National Guard, or Reserves have the benefit of the VA loan. This loan offers 100% financing and flexible underwriting requirements. But just like any loan, you probably want to secure the lowest interest rate possible on it.

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So how do you get the best VA mortgage rates? Use the below tips to help you get started.

Pull Your Credit

You’ll likely hear that the VA doesn’t put a lot of emphasis on the credit score. It’s true, but that doesn’t mean that the funding lenders don’t care about your credit score. You have to remember that the VA doesn’t fund your loan. They don’t even underwrite it. Only the VA approved lenders do this.

VA lenders often have a credit score requirement of at least 620. Sometimes they even want a higher credit score. If you want to secure the lowest interest rates possible, you’ll want the highest credit score. In order to increase your credit score, you’ll need to know what your credit looks like. You can pull your free credit reports here. This will give you a close look at your credit history. If you want to know your actual score, you’ll need to check with your bank or credit card companies to see if they offer access to your credit scores (most do).

Fix Your Credit

Once you have your reports in front of you look for the following:

  • Do you have any late accounts? Bring them all current as soon as possible.
  • Do you have any overextended credit accounts? Pay the balances down as quickly as you can.
  • Do you have too much new credit? Let your credit age by just letting it sit.
  • Do you have too much revolving debt? Try to fit in an installment loan to balance out your credit mix.

These changes will help your credit score change. It won’t happen overnight, though. It could even take a few months. The more drastic changes that you make, though, the more likely it is that you’ll get the reaction you need in your credit score.

While it might seem like a pain to improve your credit score, with each increase, you’ll likely see a drop in your interest rate. Lenders want to know that you are financially responsible. The riskier you seem, the higher the interest rate they will provide.

Lower Your Debt Ratio

The VA also doesn’t put a lot of emphasis on the debt ratio. Instead, they look at your disposable income. But again, lenders will look at your DTI.

At the very least, they want your total debt ratio below 43%. Because we said ‘maximum’, it’s better if you have a lower debt ratio. The fewer debts you have outstanding, the more money you have available to make your mortgage payment. This decreases your risk of default, which encourages lenders to give you a lower interest rate.

Put Money Down on the Home

You probably already know that the VA loan doesn’t require a down payment. You can secure 100% financing if you need it. Don’t expect a lender to give you the best interest rate available if you choose this option though.

Lenders want to know that you have ‘skin in the game.’ If you take 100% financing, you don’t have any of your own money invested in the home. What would prevent you from walking away from the home if it became tough to make the mortgage payments? Unless you invest your own money, there’s not a lot driving you to make those payments.

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If you put money down on the home, you’ll likely see a decrease in your interest rate. Of course, the more that you put down, the more the rate will decrease. Try putting down at least 5% – 10% to see the greatest reduction in your interest rate.

Shop Around

The next best thing you can do to secure the lowest interest rate is shop around. You should do this with any type of loan, but especially with a VA loan. Veterans often assume that every lender will give them the same rate – that’s not true, though.

We suggest that you get quotes from at least three lenders. This way you can compare the offerings side-by-side. Make sure you compare apples-to-apples, though. For example, if one lender gives you a quote for a 30-year fixed loan and another gives you a quote for a 5/1 ARM, you aren’t comparing exact loans.

When you shop around, make sure that you look at the closing costs too, as they play an integral role in the right mortgage. You could get the lowest interest rate available, but end up paying a large amount in closing costs. This could decrease the value of the lower interest rate.

Getting the lowest interest rate on a VA loan is possible. You just have to put in the legwork to make it happen. Don’t make the mistake of assuming your credit is good. Find out if it really is by looking at it. Then work on your debt ratio and finally, shop around.

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