VA home loans are less risky for lenders because they are guaranteed by the federal government’s Department of Veterans Affairs. Because of this important backing, lenders are able to offer lower interest rates than they may be able to using other mortgage products.
The interest rate on a VA loan is determined by the lender themselves, so its important to shop around for a reputable lender who will give a great rate. There are a few factors that the buyer can influence to get the best rate available.
Credit Score
A higher credit score means that those analyzing financial data have determined that you are more likely to be able to make payments on a loan than someone with a lower score. A higher credit score makes you a less risky investment and lenders will often offer better terms.
Type of Loan
Using a VA loan, buyers are often able to get the most favorable terms available. This includes low interest rates.
Loan Time
Mortgages are often done for 15-year or 30-year payback times. A 15-year mortgage usually comes with lower interest rates than a 30-year mortgage.
Market Rates
Interest rates are set by the Federal Reserve, Treasury, and individual lenders. They can vary to reflect the risk of a particular borrower and situation, but must fall within limits set by the current market.
Rates can change based on market conditions. During your loan application, you will reach a point when your lender can lock in your rate. Once you lock in your rate, it will not go up. You generally need to have a reasonable idea of when you will close, or finalize your purchase, to determine when you can lock in your rate.
Is my rate the same as my APR?
Interest rate and APR are similar, but not exactly the same. Interest rate is the amount of additional money you will need to pay to your lender for the duration of borrowing money for your home purchase. APR includes additional fees incurred when you set up the loan and is almost always slightly higher to account for these additional expenses.
APR can include loan origination fees, closing costs, and discount points purchased, in additional to the actual interest rate costs.
When talking to multiple lenders, make sure to ask them what is included in your APR. The most common places to see differences between are in these fees, so it’s critical that you understand them.