According to a weekly survey of 100+ lenders by Freddie Mac, the average mortgage interest rates increased slightly week over week — 30-year fixed rates went up (6.42% to 6.48%) as did 15-year fixed rates (5.68% to 5.73%).
VA rates are no different. In fact, when compared to other loan types — conventional and FHA, for example — VA home loans offer consistently lower rates than for the average consumer.
Shop and compare your personalized rates with multiple lenders (Jan 8th, 2023)
VA Mortgage Rates 2023
| VA | Conventional | FHA | |
| December 2021 | 2.99% | 3.38% | 3.39% |
| November 2021 | 2.95% | 3.32% | 3.32% |
| October 2021 | 2.88% | 3.22% | 3.22% |
| September 2021 | 2.85% | 3.17% | 3.20% |
| August 2021 | 2.88% | 3.19% | 3.23% |
| July 2021 | 2.94% | 3.27% | 3.27% |
Source: Ellie Mae Origination Insight Report, June 2021
How to get the lowest VA mortgage rate
If you’re getting a VA loan, you already have a head start on getting a great deal. VA loans typically offer the lowest rates of all mortgage options.
Still, there are more ways to ensure you’re getting the lowest rate possible:
- Make yourself into the most attractive borrower you can
- Shop around for the lender that suits you best
Here’s a step-by-step guide to getting the best mortgage rate.
5 tips for strengthening your VA mortgage application
Work to improve your personal finances before you start shopping for a loan can make a big difference to the interest rate you’re offered. That’s because mortgage lenders offer the best rates to the borrowers deemed least risky.
Here are some of the variables a mortgage lender will consider when evaluating your application and determining your interest rate:
- Credit score
- Existing debt
- Down payment (if any)
- Employment history
- Discount points
Below, we’ll explore the steps you can take to make your application as attractive as possible — and potentially help you save thousands of dollars with the lowest interest rate.
1. Improve your credit score
Although the VA doesn’t set a minimum credit score, most lenders impose their own credit thresholds. These minimum credit score requirements vary by lender but typically range from 580 to as high as 660.
Still, there’s good reason to get your credit score as high as you can, not just over the credit score minimum. The higher your credit score is, the lower interest rate you’re likely to receive. Raising your credit scores is one of the best ways to bring your interest rate down.
To improve your score, start by requesting free copies of your credit report from the Big 3 credit bureaus. You can get these all at once at AnnualCreditReport.com. You’re entitled to one free report every year so be wary of sites that try to charge you.
Review your report carefully and have any mistakes corrected. Errors are commonplace on these and adverse ones can seriously lower your score.
FICO is the most widely used credit scoring system in the country and it determines your score based on:
- Payment history: 35%
- Credit utilization: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New line of credit: 10%
That means you can improve your credit score by:
- Paying your bills promptly
- Keeping your credit card balances below 30% of the credit limit
- Not opening new credit accounts or closing old ones where possible
- Using a mix of loan types, including credit cards and installment loans (like auto loans or personal loans) rather than relying on just one kind of credit
- Not opening many new accounts quickly
For a deeper dive into strategies to raise your credit ahead of a VA loan, check out this article: 6 Steps to Restore Your Credit
If you’re planning to apply for a mortgage, do your best to stick by those rules as rigorously as possible right up until closing. It could make a significant difference to the overall cost of your home loan.
2. Lower your existing debt
Lenders look closely at your debt-to-income (DTI) ratio. This figure reflects the percentage of your monthly pre-tax income that goes to:
- Existing debt payments (including minimum credit card payments and installment loans)
- Other financial obligations, such as child support or alimony
- Projected mortgage payments and homeownership costs for your new home
For an in-depth look at how DTI can impact your borrowing, check out this article: How Does DTI Affect Loan Amounts?
DTI affects the amount you can borrow but it’s also key to determining your interest rate. The higher your DTI, the higher interest rate you’re likely to pay.
So what’s the best way to improve your DTI for the best possible interest rate? Start by paying off your debts strategically.
If you can, begin with credit card debt. Are any of your balances higher than 30% of that card’s credit limit? Bring them down to 30% (or lower!) as soon as you can. This offers the best bang for your buck in determining your mortgage rate. This is because you’re boosting your credit score and reducing your DTI at the same time.
Once you’ve done that, if you’re able, look at your installment loans. These days, most can be paid early without incurring a prepayment penalty. Confirm this with your lender before you make any early payments.
Your goal is to reduce the outstanding amounts, rather than paying them off entirely. If you do this, you can ask your lender to lower monthly payments to reflect the new balance. This way, your monthly payments will be smaller and this will be reflected in your DTI.
Paying off your debt takes time and dedication. Still, small changes can make a big difference to your VA mortgage interest rate.
3. Make a down payment
One of the biggest benefits of VA loans is that you don’t have to make any down payment.
Still, making a down payment can give you access to lower interest rates (and may reduce the amount of your VA funding fee).
If you can put together a 5% — or even 10% — down payment, you’ll likely pay a lower interest rate.
This can be very doable for existing homeowners, especially in areas with rapidly rising home prices since you’ve probably accumulated more equity in your home. That equity can be used to make a down payment on your next home.
It can be tough for VA first-time buyers to come up with such amounts. Still, if you can muster the funds, it could save you money on your funding fee and earn you a lower VA interest rate.
4. Don’t change jobs
Your mortgage lender will review your employment history when calculating your mortgage interest rate. When it comes time to apply, there’s not much you can do about your employment history. Lying on your mortgage application qualifies as fraud.
But by avoiding big employment changes in the months leading up to your application, you can demonstrate employment stability to your lender.
The lender wants to know your employment is stable and that you’ll have a reliable income stream to repay the loan.
Though it’s not impossible to change jobs once you’ve started the home buying process, it will help your application if you keep the same job in the months leading up to your application and through to closing. If you do change jobs, it’s best to stay in your field or profession.
5. Consider buying discount points
Discount points allow you to buy yourself a lower interest rate by paying more money upfront, at closing. As with a down payment, this is an option more accessible to borrowers with more money available at closing.
Still, if you can afford it, discount points can help you save money over the life of your loan.
This article will help you determine whether discount points are useful for your particular financial situation.
Compare lenders to get the best rate
If you want to get the lowest possible interest rate on your VA home loan, shopping around for lenders is essential.
Start by looking for a VA lender who works with borrowers like you.
How do you know which lenders will work with you? Check out the lender’s website to find its minimum requirements, including credit score threshold, to see whether you’re likely to qualify.
Click here to connect with multiple VA lenders (Jan 8th, 2023)
Request at least 3 to 5 quotes
Find at least three to five lenders and request quotes from each. The more lenders you apply with, the better your chance of finding a low rate.
Make sure that you request quotes for the same loan terms (i.e. 15-year term, 30-year term, fixed-rate, adjustable-rate, etc.) from every lender so that you’ll be doing an apples-to-apples comparison.
Review your loan estimates
Each lender is required by law to provide a quote in a standardized format called a Loan Estimate. Each LE will come in an identical format, which makes it easy for you to compare each one side-by-side. This Loan Estimate will contain all the figures you need — including interest rate and closing costs — to identify your best deal.
Take note especially of the “Comparisons” section near the top of page 3. It will show your annual percentage rate (APR), which represents your total loan costs as an annual amount. APR can help you determine which lender is least expensive in the long term when all costs — including interest and upfront fees — are considered.
Additionally, this section shows how much you’ll have paid — and paid off — at the end of the first five years, which will help you to determine the best offer.
Need more help understanding your Loan Estimates? The Consumer Financial Protection Bureau has a Loan Estimate Explainer on its website, including sample pages so you know what to expect.
15-Year vs 30-Year Mortgage Terms: Which is cheaper?
Sometimes, borrowing over a shorter period — 15 years rather than 30 years — can get you a lower interest rate.
It’s important to note that with a 15-year mortgage your monthly payments will be substantially higher because you’ll be making fewer monthly payments overall. So while you’ll save money in the long run, you’ll pay more month to month.
The difference between 30-year VA loan rates and 15-year ones fluctuates so review current rates. If you can afford to borrow for a shorter amount of time, you may earn a lower interest rate — and you’ll own your home that much sooner!
Fixed-rate vs ARM: Which is cheaper?
As with loan length, rate type is a loan term that can impact your mortgage rate.
Adjustable rate mortgages are often available at lower interest rates but keep in mind that the rate will go up at the end of the introductory period. Depending on how long you plan to keep the loan before moving or refinancing, this could be a good deal. With a fixed-rate mortgage, you’ll pay the same rate for the life of the loan but you are guaranteed an interest rate that won’t increase.
As with all mortgage terms, the most affordable option will depend on your personal financial situation.
How to get the lowest VA interest rate
To get the lowest interest rate possible on your VA mortgage, you’ll want to make yourself into the most attractive borrower possible, while also finding the lender who offers you the best deal.
If you take the time to do both, you’re likely to end up with a lower interest rate — something that could save you thousands of dollars over the life of your VA loan.
Shop and compare your personalized rates with multiple lenders (Jan 8th, 2023)
Source: militaryvaloan.com