7 Essential Tips to a Lower Interest Rate
If you are eligible, a VA loan can be the most reliable, affordable, and convenient financing option for your home.
VA loan rates can vary depending on the purchase and the borrower. Fortunately, there are a few things you can do to increase your chances of an affordable loan.
7 Tips for Low VA Rates
Use these steps to get a low VA loan rate…
1. Work on Your Credit Score
As you likely know, your credit score will play a major role in your interest rate. If you want low VA rates, one of the best things you can do is to improve your score, but you have to start long before you make a visit to the lender, as credit scores take a while to rise.
Start by pulling your credit profiles from the major lending bureaus and look for any outdated or inaccurate information. If this information can be removed, it will raise your score almost instantly. You can then focus on making sustained payments and managing debt responsibly, which will progressively improve your credit score.
2. Pay Off as Much Debt as Possible
The amount of debt you have plays an important role in your ability to qualify for a loan, especially when your debt load is compared to your income. It’s not necessarily the total amount of debt you have, but how that debt stacks up against your monthly earnings, called the “debt-to-income ratio” that make the difference.
For example, two people with $2,000 in monthly debt payments will qualify differently. If the first person makes $4,000 a month, the $2,000 in payments represents 50% of his income. However, if another borrower makes $8,000 a month, the debt load is only 25% of her income. Clearly the second borrower presents a lower risk to the lender, and she will therefore be rewarded with a lower interest rate.
3. Save for a Large Downpayment
At the same time, you should also save for a downpayment. Obviously this can be tough when you are trying to pay off debts, but if you are able to save for a downpayment you will have a far lower interest rate on your VA loan.
This point, however, does contradict one of the top advantages for VA loans: the chance at 100% financing. (No downpayment.) While VA loans are one of the few options that offer no-downpayment loans, if you can bring a downpayment you will likely reduce your VA loan interest rate.
4. Avoid Changing Jobs, Careers, and Industries
To reduce the statistical chances of default on the loan, which will mean a lower interest rate, it’s important that you avoid changing jobs. If you change careers, statistically speaking your are more likely to come across financial issues; lenders know this and will increase the interest rate (or deny the loan) if you have recently switched companies. This is especially true if you have gone from one industry to another.
We understand that sometimes you need to make a change. But before purchasing a house with a VA loan, try not to switch jobs, especially if you are shifting to a different industry. Also, if you are starting a business, you will likely need two years of self-employment so it may not be wise if using a VA loan, or other forms of financing, is in your future.
How to Get a Low Rate During the VA Loan Application
When you are working through your application, use these tips to help reduce the loan rate…
5. Find Local and State Support for Veterans
You may not even realize it, but there could be significant veterans support in your area, and some of the support could come in the form of mortgage assistance. Ask your lender if there are any state or local programs that help veterans qualify for loans. (In some cases, this may not even include a VA loan, but an entirely different option.)
6. Pay Discount Points
In exchange for paying additional funding upfront, you may be able to secure a better interest rate. Called “discount points,” these are simply fees that borrowers pay to reduce the interest on your mortgage. The overall reduction of each point will vary by lender and by the specific loan type you select, so talk with your lender about the details.
Although discount points may not always be worth the investment, there are many situations when they help you save money overall. You’ll need to sit down and calculate the savings to ensure they help reduce your total expenses.
7. Use a 15-Year VA Loan
The shorter your loan term, generally, the less you will have to pay in interest. Therefore, it is almost always beneficial to choose a 15-year VA loan over a 30-year option. Typically, a 30-year loan is how the vast majority of Americans purchase their homes. While this option brings lower payments (assuming the same loan total), it also means a longer period when the loan can go in default.
If you use a 15-year mortgage, the timeframe for a potential default on the loan is essentially cut in half. Once again, this means less risk to lenders, so you will have the chance to secure the loan you need with a lower interest rate. Of course, with a 15-year mortgage the monthly payments can be higher, but if VA loan rates are a concern, this could be a great option.
8. Use Automatic Mortgage Payments
Simple solutions are often the best, and few solutions are as simple as this: set up automatic deductions and you may be able to get a lower interest rate. With this system, the mortgage payment is automatically taken from your account, which significantly reduces the chance for a late or missed payment. Basically, if the money is in the account, you can never be late with a payment. With this system, you may be able to get a discount on your VA loan interest rate.
You Deserve an Affordable, Convenient VA Loan
VA loans can be incredibly affordable and reliable for numerous borrowers across the country. Contact our staff today to learn more about these effective loans. We take a common-sense approach to lending to help you get approved, so let us find the right loan for your specific needs!