VA loans can provide valuable financing benefits for eligible veterans, active-duty service members and certain surviving spouses. Benefits may include the ability to purchase with no required down payment for many eligible borrowers and no monthly private mortgage insurance.
But VA eligibility does not mean every borrower—or every lender—will offer exactly the same interest rate.
VA mortgage rates can vary based on the borrower, the loan, the lender and financial-market conditions. Understanding what can influence your rate can help you evaluate your financing options more effectively.
If you're considering a VA loan in Annapolis, Anne Arundel County or elsewhere in Maryland, here are some of the factors worth understanding.
Does the VA Set VA Mortgage Interest Rates?
No. The U.S. Department of Veterans Affairs does not set the interest rate that a veteran receives on a VA-backed mortgage.
VA loans are generally made by private lenders, and lenders establish their own interest rates, discount points and other loan terms. That means VA loan pricing can vary from one lender or loan scenario to another.
Market conditions also change, sometimes frequently, so the rate available to a borrower today may be different from one available at another time.
Does Your Credit Affect Your VA Loan Rate?
It can.
The Department of Veterans Affairs does not establish a minimum credit score for VA-backed home loans, although individual lenders may establish their own credit requirements.
Credit can also affect mortgage pricing. Depending on the lender and loan scenario, a stronger credit profile may result in different pricing than a weaker one.
Rather than focusing exclusively on a particular credit-score threshold, borrowers should have their complete financial profile reviewed.
Before applying, it can also be worthwhile to review your credit reports for inaccurate information and continue making existing credit obligations on time.
Does Debt-to-Income Ratio Affect a VA Mortgage Rate?
Debt-to-income ratio, commonly called DTI, compares certain monthly debt obligations with gross monthly income and is one of the factors considered during mortgage qualification.
There is no single debt-to-income ratio that automatically determines whether a borrower will qualify for a particular VA loan rate. VA underwriting considers the borrower's overall financial situation, and residual income is also an important part of VA loan qualification.
A borrower with questions about debt should have the complete loan scenario evaluated rather than assuming that one particular DTI percentage determines eligibility or interest rate.
Do You Need a Down Payment to Get a Good VA Loan Rate?
Many eligible VA borrowers can purchase a home without a required down payment.
Making a down payment can reduce the amount borrowed and may affect other aspects of the transaction. Depending on the borrower's circumstances, it may also affect the VA funding fee.
But borrowers shouldn't assume that making a particular down payment will automatically produce a specific interest rate.
The better approach is to compare the overall loan structure—including the amount financed, interest rate, closing costs and cash required at closing.
What Are Mortgage Discount Points?
Discount points allow a borrower to pay an upfront cost in exchange for a lower mortgage interest rate.
One point generally equals 1% of the loan amount. However, the amount by which a particular number of points reduces a rate can vary with market conditions and loan pricing.
Paying points isn't automatically the best choice.
A borrower who expects to own the home for many years may evaluate points differently from someone who expects to move or refinance sooner. Comparing the upfront cost with the potential monthly savings can help determine whether paying points makes sense.
VA Funding Fee vs. Interest Rate: What's the Difference?
The VA funding fee and your mortgage interest rate are two different things.
The interest rate helps determine the interest charged on the money borrowed.
The VA funding fee is a one-time charge that applies to many VA loans and helps support the VA home loan program. The amount can vary depending on the type of VA loan, previous use of the benefit, down payment and other circumstances.
Certain eligible borrowers may be exempt from the VA funding fee.
Borrowers should understand both when evaluating the total cost of VA financing.
Does a 15-Year VA Loan Have a Lower Rate Than a 30-Year VA Loan?
Loan term can affect mortgage pricing, and shorter-term mortgages may sometimes be available at lower interest rates than longer-term loans.
However, a shorter term also generally means a higher required monthly principal-and-interest payment because the balance is being repaid over fewer years.
The lowest interest rate isn't necessarily the best loan structure for every borrower. Monthly payment, cash flow, financial goals and expected time in the home should all be considered.
What's the Difference Between Interest Rate and APR?
Interest rate and annual percentage rate, or APR, aren't the same thing.
The interest rate represents the rate charged on the principal balance of the mortgage. APR is designed to provide a broader measure of borrowing costs by incorporating the interest rate and certain other finance charges.
When evaluating VA loan options, borrowers should look beyond a single advertised rate and review the overall costs and terms of the loan.
Should You Wait for VA Mortgage Rates to Fall?
Trying to predict exactly when mortgage rates will rise or fall is difficult.
Interest rates respond to changing economic and financial-market conditions, and future movements cannot be known with certainty.
Instead of basing a home purchase solely on predictions about future rates, consider whether the home, monthly payment, cash required and overall financing make sense for your current circumstances.
If rates change significantly later, refinancing may be an option depending on your circumstances and the costs and benefits at that time.
Can You Refinance a VA Loan to Get a Lower Rate Later?
Eligible homeowners with an existing VA loan may have access to the VA Interest Rate Reduction Refinance Loan (IRRRL).
An IRRRL is designed specifically for refinancing an existing VA-backed mortgage. Whether refinancing makes financial sense depends on the new rate and payment, closing costs, how long the borrower expects to keep the loan and applicable VA requirements.
A lower advertised interest rate alone doesn't necessarily mean refinancing will produce enough savings to justify the transaction.
Look at More Than Just the VA Loan Rate
Interest rate matters, but it is only one component of a mortgage.
When comparing VA financing, consider:
- Interest rate
- APR
- Discount points
- Lender fees and other closing costs
- Monthly principal and interest
- Cash required at closing
- Loan term
- VA funding fee, when applicable
- How long you expect to keep the mortgage
Looking at these factors together provides a much better picture than simply choosing the option displaying the lowest interest rate.
Explore Your VA Loan Options
Every VA borrower's financial circumstances are different. Redwood Mortgage Services can help eligible veterans and military families review VA financing options and understand the factors that may affect their mortgage.
For a broader overview of VA eligibility, entitlement, purchase and refinance options, visit our VA Home Loans in Annapolis, MD page.
Frequently Asked Questions
Are VA loan interest rates set by the Department of Veterans Affairs?
No. The Department of Veterans Affairs does not set mortgage interest rates. VA-backed loans are provided by private lenders, and rates and loan terms can vary based on the lender, borrower, loan characteristics and market conditions.
Does having a higher credit score guarantee a lower VA loan rate?
No. Credit can be one factor in mortgage pricing, but it does not by itself determine the interest rate a borrower will receive. Loan characteristics, market conditions and lender pricing can also affect the rate and terms available.
Can I pay discount points to lower my VA mortgage rate?
Potentially. Discount points involve paying an upfront cost in exchange for a lower interest rate. Whether paying points makes financial sense depends on the cost, the resulting rate reduction and how long you expect to keep the mortgage.
Is the VA funding fee part of my interest rate?
No. The VA funding fee and mortgage interest rate are separate. The funding fee is a one-time charge that applies to many VA loans, while the interest rate determines the interest charged on the mortgage balance. Certain eligible borrowers may be exempt from the VA funding fee.
Can I refinance my VA loan if interest rates decrease?
Potentially. Eligible borrowers with an existing VA-backed mortgage may be able to use a VA Interest Rate Reduction Refinance Loan (IRRRL). Whether refinancing makes sense depends on the borrower's circumstances, applicable VA requirements and the costs and potential benefits of the new loan.
Should I choose a VA loan based only on the lowest advertised rate?
No. Borrowers should consider the interest rate along with APR, discount points, lender fees, closing costs, monthly payment, loan term and other applicable costs when comparing mortgage options.
Related VA Loan Reading
Understanding VA Loan Options for Veterans
Learn about VA purchase loans, refinancing options, renovation financing, the VA funding fee and other ways eligible borrowers may be able to use their VA home loan benefit.
5 Common VA Loan Myths Veterans in Anne Arundel County Should Know
Learn the facts behind common misconceptions involving VA credit requirements, down payments, sellers, entitlement and VA appraisals.
VA Loan Occupancy Requirements: What Veterans Need to Know
Learn about VA primary-residence requirements, move-in timing, deployment, spouse occupancy, renting the home later and multi-unit properties.
All loans subject to approval. Equal Housing Lender.
Written by Charles Stuart Kiehne, President of Redwood Mortgage Services.
Stuart has helped homebuyers and homeowners with mortgage financing solutions since 1999 and is licensed in Maryland, Virginia, Washington, D.C., Delaware, North Carolina and Florida.
NMLS #92008