Because VA home loans are backed by the federal government, lenders have the luxury of charging competitively low-interest rates. Eligible veterans and service members find that rates are generally lower with a VA home loan than a conventional mortgage.
What Determines My Rate?
VA loan interest rates are influenced by a variety of factors, including:
- Credit score
- Debt-to-income ratio
- Loan duration (15- or 30-year)
- Current market conditions
Because of the risk involved in issuing a loan, a good credit score almost always means a lower rate. However, even if your credit report isn’t in perfect shape, you may still have an easier time qualifying for a low rate due to the VA Guaranty.
VA Loans and APR
It is important to understand the difference between your interest rate and the Annual Percentage Rate (APR). The interest rate on your VA loan is the cost you pay each year to borrow the money and does not reflect fees and charges you may incur to get the loan.
On the other hand, the APR on a VA loan is a broader reflection of borrowing costs, including the interest rate and other potential costs and fees associated with getting the loan.
APR can take into consideration the following items:
- Interest rate
- Origination fees and costs
- Closing agent fees
- Discount points
- Other fees dependent on the specific transaction
Your APR is likely to be higher than your base VA loan interest rate. APR is a tool that can help you compare mortgage offers.
Locking in Your VA Loan Rate
Once you’ve identified the house you wish to purchase and have entered a contract for that property, your loan officer will help you figure out what the rate will look like. In most cases, we will have a better forecast of your rate after an underwriter has reviewed your loan and you have a general idea of your closing date.