VA loans are backed by the federal government, although the VA does not offer or set mortgage rates. This gives lenders the option to charge low mortgage rates that are very competitive. Due to this, eligible VA borrowers find that VA mortgage rates are usually lower than those offered through conventional mortgages. Here are 5 important tips about VA mortgage rates:
1. VA mortgage rates are partially determined by your credit score, debt to income ratio (DTI) and term of loan. Having a good credit score and low DTI typically will produce a better rate. However, due to the VA guaranty, you may still qualify for a low rate even if your credit is not perfect.
2. VA mortgage rates offered by lenders can be different and depend on many factors including the volume of loans they do and their overhead costs. Saving thousands of dollars is common by shopping and comparing lenders.
3. The lowest VA mortgage rate offered may not be the best option for saving money. A lender may offer a low mortgage rate, but charge higher lender fees. For example, a lender who offers a rate of 3.75% and charges $2,500 in lender fees may not be the cheaper mortgage than a lender who offers a rate of 3.875% with no lender fees.
4. When comparing VA mortgage rates, you cannot simply rely on the APR (Annual Percentage Rate). The APR usually includes closing costs and other charges that are part of the mortgage and is calculated using the term of the loan. Therefore, the APR may appear to be lower even if the cost of the loan is higher. Instead, every charge and fee should be looked at and compared in order to determine the better deal. Most importantly, lender related fees should be carefully compared as these are the fees that often vary and are controlled by the lender. Lender fees can be labeled as Origination Fee, Discount Points, Broker Fee, Application Fee, Underwriting Fee and Processing Fee. Appraisal fees, Title Company Fees, State and/or County Mortgage Taxes, and Escrow Setup “Pre–paids” typically will be the same or very close to the same at closing since these are set by third parties and/or are regulated.
5. Calculating the break even point is also important when comparing VA mortgage rates, especially when refinancing. The break even point is determined by taking the costs (fees) of the mortgage divided by the savings each month which will equal the amount of months it will take to pay off these fees. After that period, then there is true savings. If you plan on owning the home past the break even point, generally the lower interest rate is the most efficient option.
To often, VA borrowers will choose the lowest VA mortgage rate offered without considering what it really takes to receive a good mortgage. Taking the time to consider and compare all of the individual fees and costs in addition to the quoted VA mortgage rate will reveal to you what the mortgage is actually costing you. A reputable VA lender can assist you with comparing offers and calculating your savings that will make sense and benefit you, the VA borrower.
Feel free at any time to contact me for more information about a VA loan and comparing VA mortgage rates and fees to help determine the better VA loan for you.
My loan process was very easy and quick. Not to mention a great loan rate. I couldn't be happier!
Capt Sam T. - US Army
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