Buying a home with no money down creates a dream situation so that many can experience home ownership. You have probably heard that VA loans offer the ability for first time home buyers to purchase with no money down. Yet, did you know that using a VA loan a second, third, or even more times could be 100% financing? Even having multiple VA loans at once could mean no money down or a low down payment percentage. You may be thinking something with these benefits must mean that VA interest rates are really high. At least higher than other loan types. Absolutely not! Actually, VA loans are known for piling on the advantages and very competitive interest rates is one of them.
But, when it comes to your monthly mortgage payment, there are even more features that usually make it your option for buying a home. Let us show you why VA loans are such a thing of beauty and how to find how current VA interest rates can help.
How Are VA Interest Rates Determined?
Like all other mortgage rates, VA home loan interest rates are affected by the economy and the mortgage bond market. There are many areas worldwide that can make interest rates go up or down. Including war, stock market, terrorist attacks, bond markets, inflation, and even rumors. Not every VA lender has the same interest rate. Many have different investors and some do not focus on VA loans. OVM Financial primarily focuses on VA home loans and works hard to provide very competitive VA loan rates.
In addition to the above, interest rates are determined by the borrower’s scenario. For instance, credit scores, debt to income ratios, loan amount, and other factors could influence the interest rate. Lower credit scores could mean a higher rate and vice versa. Every home loan type does this. so do not shy away from a VA loan just because of a low credit score. Usually, it is still the best way to go and OVM offers VA manual underwriting too.
How Do VA Interest Rates Compare With Other Mortgages?
Assuming high credit scores, most mortgage rates are going to be very close to each other. However, government loan interest rates are typically a little lower. As the credit scores start dropping, VA home loan interest rates along with FHA and USDA start to widen the interest rate advantage. Definitely, sub 700 credit scores are much better off by choosing VA, FHA, or USDA compared to conventional. Conventional loans have more rate add-ons as credit scores drop. Here are a few comparisons.
VA Loan vs FHA Loan
When it comes to comparing VA interest rates and FHA interest rates, usually they are very comparable and may even be the same. So assuming a buyer qualifies for both, no big deal right? Wrong! There are three primary points to remember when comparing FHA vs VA loans – Mortgage insurance, down payment requirements, and VA eligibility. First of all, both are great home loans. The most obvious difference is to use a VA loan, you must be in the military, a military Veteran, or a surviving spouse of a deceased Veteran or service member.
Next comes mortgage insurance (commonly called PMI). Both FHA and VA loans charge an up-front funding fee. The FHA funding fee is always 1.75% of the loan amount and VA ranges from 1.25% – 3.3%. The funding fee is financed into the loan. The biggest difference between VA and FHA loans is monthly PMI. VA does not charge monthly PMI but FHA does. Thus, the winner by far in this category is VA!
Then, comes the down payment comparison. VA does not require a down payment unless using a large enough VA loan while some entitlement will be tied up from another VA loan or using a VA jumbo loan. FHA requires at least a 3.5% minimum down payment. The only exceptions are when combining with a down payment assistance program or if buying a HUD foreclosure that allows for the HUD $100 down program.
Unless a buyer’s VA entitlement is all tied up or another unique scenario, VA is the clear winner!
USDA vs VA Loan Interest Rates
Even though USDA Rural Development Guaranteed Loans are a government loan, usually VA interest rates are slightly better. Both USDA and VA loans will lend up to 100% of the sales price. When it comes to comparing USDA vs VA loans, there are a few key differences which include income limits, property eligibility, and mortgage insurance. When considering a USDA loan, it is important to remember that there are household income limits and properties must be located within USDA eligible areas. VA does not require either. Buyers using a VA loan can make a million dollars a year and could buy anywhere in the U.S., assuming everything else qualifies.
Like FHA, USDA has monthly mortgage insurance, but it is a lot cheaper than FHA. As mentioned earlier, VA loans do not charge monthly PMI. Advantage VA! Both VA loans and USDA charge a financed funding fee. Again, USDA beats FHA as its fee is only 1% of the loan amount. This is one area that USDA could win. For instance, someone using VA again may have to pay a 3.3% funding fee. On a $300,000 loan, we are talking $9,900! USDA would only be a smidge over $3,000. Besides this and saving VA entitlement, VA wins again.
VA Loan vs Conventional Interest Rates
We have shown how VA loans compare with other government loans. Both cases, VA is the hands down winner. Now, let’s compare to one that has a better chance of winning (in certain situations). First of all, conventional loans do not offer a no down payment option (unless using down payment assistance). Fannie Mae and Freddie Mac conventional loans offer as little as 3% down payment through their HomeReady and Home Possible programs respectively. Also, conventional loans do not charge an up-front funding fee. Although, they do offer an option of single premium up-front mortgage insurance.
Furthermore, when conventional loans surpass 80% of the purchase price, mortgage insurance of some kind is required. Traditionally, monthly PMI is chosen. As discussed earlier, high score borrowers can expect similar interest rates between the two loans. As scores go under 760, the conventional interest rates get progressively worse compared to VA current interest rates.
Conventional loans have their primary advantages over VA loans in the following areas:
Since VA loans are only for primary residences, it cannot be used for an investment property or second homes. Furthermore, like a conventional loan, a buyer may put 20% down using a VA loan. So, in this case, it will be close. Compare the interest rates and see which works best.
Current VA Interest Rates Are Tough to Beat!
Now you know that just because VA offers no down payment, the rates are still as good as it gets! If a buyer’s goal is to buy with no down payment and a lower monthly payment, it is tough to beat current VA interest rates and VA loan benefits. Using advantages we have discussed in this article, you can tell VA loan interest rates are the way to go. But, don’t forget the other benefits like allowing higher debt to income ratios. no monthly mortgage insurance (lower payments), more flexible with prior foreclosure, short sale, or bankruptcy, flexible student loan guidelines, low down payment percentage for jumbo loans.
Do you think that a VA loan is right for you? Contact an OVM Financial loan officer to get qualified and take advantage of current VA interest rates!