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7 Ways to Get the Best VA Interest Rate

Getting the best interest rate on your VA home loan or VA refinance can potentially save you hundreds of dollars on your monthly mortgage payments. While mortgage interest rates often depend on economic conditions, there are some things you can do to get a lower interest rate.

In this article, we’re going to help you get the lowest VA mortgage rate possible.

1. Understand the VA Loan Types

The type of VA loan you choose will impact your interest rate. First, you should know that new-purchase VA loans typically offer lower rates than VA refinances. But those aren’t your only options. Here are a few more to consider for a lower VA mortgage rate.

15-Year VA Loan

15-year loans typically offer lower interest rates than 30-year loans. By paying off your loan sooner, you can save money on total interest expense. A shorter repayment period means you’ll pay a larger chunk of the loan each month, so your monthly payments will be higher compared to spreading the loan over 30 years.

Energy Efficient Mortgage

To promote energy efficiency, qualified borrowers can finance the costs of certain home energy improvements into their VA purchase loan or VA refinance. Any upgrades more than $6,000 will require VA approval.

VA Streamline Refinance

A VA Streamline Refinance, also called an Interest Rate Reduction Refinance Loan (IRRRL), offers borrowers a quick way to refinance when lower interest rates are available. There is less paperwork required compared to a traditional refinance, which means lower underwriting fees. In some cases, you can even avoid getting a new appraisal, which saves you time and money.

VA Cash-Out Refinance

As the name implies, a VA Cash-Out Refinance allows you to get cash out of your existing home equity while refinancing to a new term and mortgage interest rate. This can be a good option for homeowners who want to use the equity in their home to start a business, fund another investment or pay off higher-interest debts.

2. Work On Your Credit Score

Improving your credit score is one of the best ways to get a lower VA mortgage rate. While most lenders offering VA-backed financing require a FICO score of at least 620, you can get a lower interest rate by maintaining a higher credit score.

Give your credit score a boost by making all payments on time, keeping credit card balances below 30% of your credit limits and keeping old credit lines open even if the debts are paid off.

3. Lower Your Debt-to-Income Ratio (DTI)

Your DTI ratio shows how much of your pre-tax income is allocated to your existing debt payments. In general, lenders want to see that your monthly debt payments equal less than 41% of your gross income. The lower this number is, the more comfortable lenders are that you can afford your mortgage payment, which increases your chances of securing a lower interest rate.

4. Look for State Programs

VA loans are a federal benefit for all qualified military service members, Veterans and surviving spouses. But individual states can offer additional assistance on top of your federal VA benefits.

Check with your state to see if you can get down payment assistance, help with closing costs or interest rate discounts.

5. Be Wary of Recommendations

It might be tempting to use a lender recommended by your friends or family. But this can actually backfire if you're figuring out how to get the lowest interest rate on a mortgage. Since home mortgages are specific to each individual borrower, the recommended lender might not be a good match for you at this point in time.

For example, the recommended lender might specialize in FHA loans and have less experience with VA loans or finance with higher interest rates than another lender in your market.

6. Apply to Multiple Lenders

Each lender is allowed to set their own rates based on their own criteria according to established legal guidelines. So different lenders could offer different mortgage interest rates on the same home. The only way to be sure you’re getting the lowest interest rate on your VA loan is to apply to multiple lenders.

7. Compare Lender Quotes

If you’re going to apply to multiple lenders, you need to know how to compare their quotes. The interest rate is one of the first factors you should compare. However, you should also consider loan terms and applicable fees charged by each lender to ensure you’re getting the best deal.

Can You Pay to Lower Your Interest Rate?

Regardless of the interest rates offered by your chosen lender, you can pay to lower your interest rate further.

Mortgage points are available for purchase. Each point you buy lowers your interest rate by .25% and typically costs 1% of your mortgage.

For example, if you have a $200,000 loan offer with a 4.5% interest rate, you could pay $2,000 upfront to lower the interest rate to 4.25%. This could lower your monthly mortgage payment by approximately $30 and save you more than $10,000 over the term of your loan.