VA Rates : Lower Than Conventional, FHA
When it comes to mortgage rates, everyone is looking for the lowest one.
Mortgage shoppers wait for the right day to lock to save a fraction of a percentage point on their rate.
But many mortgage consumers overlook something about themselves that can reduce their rate much more than a well-timed lock: their U.S. military status.
Veterans and active duty members of the U.S. armed forces are eligible for the lowest rates compared to FHA and conventional loan applicants.
Current and former military personnel shouldn’t bypass a VA loan quote, even if they think they have negotiated a very low rate for another loan type.
VA Mortgage Rates Now 0.33% Below Conventional Rates
Each month, loan software firm Ellie Mae reports average mortgage rates for loans that run through its system in its Origination Insight Report.
The sample size is immense: thousands of mortgage companies across the U.S. run more than 3 million loan applications through Ellie Mae’s system each year.
The data is telling.
According to Ellie Mae, VA mortgage rates are currently 0.33% lower than those for conventional loans. Following are average rates for all loan types:
- Conventional: 4.34%
- FHA: 4.25%
- VA: 4.01%
Loan applicants are surprised at these results.
After being told that Veterans Administration home loans were high-risk, low-quality products, many veterans assume they come with high rates, too.
But applicants soon discover that all this is untrue. And, these myths are keeping veterans from taking advantage of this benefit.
In fact, of the 20 million veterans alive today, only about 7% of them have purchased a home with a VA loan in the past 5 years.
But veterans rarely go back to any other loan type once they have used a VA loan. The advantages are too great to pass up.
Should You Choose A VA Loan? Aren’t They A Hassle?
Another VA loan myth is that they are a major headache.
There’s onerous paperwork, say critics, plus you have to deal with the Veterans Administration.
Neither of those claims holds water.
The paperwork is no more involved than for any other loan type. Yes, there are a few more documents to gather, such as you DD-214 and your 26-1880 (request for COE). But these items are no harder to gather than a W2 or pay stub.
And, VA loans are not processed by the Department of Veterans Affairs. They are different than most other VA benefits.
The VA approves private lenders to issue these loans, then backs the loans to make sure lenders keep rates low.
Chances are that your preferred bank, credit union, or mortgage company, or online lender can issue your VA loan.
Plus, approved lenders can fetch your Certificate of Eligibility directly from the VA, sometimes within minutes.
Even if there were “onerous” requirements to qualify, the extra work would likely be worth it. Consider veteran mortgage advantages:
- Lower rates than any other loan type
- No mortgage insurance
- No down payment required
- Lenient credit standards
- Help from the VA if you have trouble making payments
The list goes on. The point is, a veteran should almost never choose a loan other than VA without at least examining this option. They will probably find that there are too many perks to pass up.
First Question To Ask A Loan Officer: “How Many VA Loans Do You Complete Per Month?”
It’s a mystery why veterans end up with non-VA loans. A VA mortgage would likely lead to a lower payment when not making a large down payment.
A VA mortgage would likely lead to a lower payment. That’s especially true when the veteran has no money to put down or has less-than-perfect credit.
One major problem is the lack of knowledge about VA loans among loan officers.
Did you know that the loan officer — the specific individual working on your loan — is more important than the company itself when it comes to providing you the best options?
The company might be great, but companies can't possibly train every loan officer to ask every question that needs to be asked, or present only the best loan solutions to the applicant. That only comes with experience.
That’s why the first question you should ask your loan officer is, “How many VA loans do you do per month?” If the answer is “zero”, politely turn and walk away. This is not someone you want presenting your options.
Many eligible veterans end up with high-cost FHA loans — or conventional loans with mortgage insurance — because their loan officer didn’t know about VA loans, or simply didn’t want to take the time to learn.
It’s often more expedient (for them) to close the deal quickly via a program they understand.
That’s not in the veteran’s best interests.
It’s fine if a friend or relative refers you to a certain loan “expert”, but you still need to do your homework. Verify the loan officer’s experience, and make sure he or she shows you the VA loan option alongside others. If the loan officer tries immediately to talk you out of a VA loan, that’s almost certainly a reason to walk.
There could be valid reasons not to take a VA loan. For instance, if you’re putting 20% down and have great credit, a conventional loan might be better. Then, you don’t pay the 2.3% VA loan funding fee, and there is no mortgage insurance.
But most new (and experienced) home buyers don’t want to put 20% down, or have better uses for that money.
In almost every case, eligible veterans should at least review their VA loan scenario.
The following is a comparison of a buyer with a 680 credit score purchasing a $250,000 home with three major loan types.
|Loan Type||Down Payment||Loan Amount*||Mortgage Insurance||Payment**|
*Includes 1.75% upfront fee for FHA and 2.3% upfront fee for VA.
**Payment is based on average rates stated above, and does not include taxes, homeowners insurance, or HOA dues.
Imagine if an eligible veteran passed up the chance to get a VA loan. They would pay thousands upfront, and end up with a higher monthly payment, too.
There’s almost never a reason to bypass the huge advantages a VA loan affords.
How Do I Check My VA Loan Eligibility?
If you’ve served in the military, chances are you are eligible. With as little as 90 days of service on active duty, or 6 years in the Reserves, you can earn eligibility for this zero-down loan.
Check your eligibility to buy a home — or refinance — with a VA loan. The verification can take just minutes, and the rewards for doing so are well worth the time invested.
*VA.gov reports 1.4 million VA home loans were issued to purchase a home between fiscal years 2012 - 2016. There are around 20.3 million veterans alive today.