How Do VA Home Loan Interest Rates Differ from Standard Home Loan Rates?

VA home loan interest rates are competitive with standard home loan rates for good credit borrowers. It is hard to compare all home loan rates across the market because the rates largely depend on the applicant. So, a good rate for an applicant with excellent credit may not be the same as a good rate for an applicant with low credit. When the same applicant secures a mortgage with the addition of a VA home loan guarantee, though, the loan will be a better deal. This savings comes not only through interest rate deductions but a number of other discounts.

Making Loans Accessible

The main goal of the VA home loan guaranty program is not to make loans cheaper; the goal is to make loans accessible to veterans who may not otherwise be able to afford a home. This includes veterans with short credit history, low credit or even a previous bankruptcy. There are still minimum credit requirements. For example, a bankruptcy must be at least two years old before an applicant can be considered for the guaranty. These minimum requirements, though they exist, are much lower than those requirements set by traditional home loan lenders. 

Down Payment Requirements

A key maneuver used to make loans accessible to veterans is reducing down payment requirements. In fact, if a veteran qualifies for the home loan guarantee, he or she will not have to make a down payment at all. The finance charge will be higher with no down payment, but the interest rate on the loan will remain low. Therefore, even if the VA home loan has the same interest rate as a standard home loan, the VA loan will still be easier to afford for veterans who do not have the capital needed to place a large down payment on a mortgage.

Fixed Interest Rates

A third key advantage with VA home loans is the fact all interest rates are fixed. Standard home loans may be issued on variable rate terms. This means the lender can offer a low introductory rate to a borrower then raise the rate significantly. In the case of a subprime loan, a lender may offer a rate discounted below the national prime interest rate. The skyrocketing interest on these variable rate loans makes them highly risky and unpredictable for a borrower. Veterans tend to have lower credit scores because of complications due to their involvement in the service. They may have to elect variable rate loans on the standard mortgage market. Thankfully, the VA home loan guaranty program removes this concern.

Financing Charges

A final method the VA offers to make this option cheaper than a standard home loan is reduced finance fees. The VA lender will be excluded from charging fees due to paperwork, photographs or brokers fees. On a standard home loan, these fees would be added to your closing costs and the additional cost can be substantial. You would either have to pay them upfront or take a loan to cover them, raising the cost of ownership. By rejecting these miscellaneous fees, your loan will be cheaper.

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