Why is my VA home loan so low?
Because the federal government backs VA home loans, lenders have the luxury of charging competitively low interest rates. Eligible veterans and service members find that rates are generally lower with a VA home loan than a conventional mortgage. The Department of Veterans Affairs (VA) doesn't set interest rates.
| Product | Interest rate | APR |
|---|---|---|
| 30-year fixed-rate | 6.417% | 6.496% |
| 20-year fixed-rate | 6.298% | 6.398% |
| 15-year fixed-rate | 5.721% | 5.854% |
| 10-year fixed-rate | 5.750% | 5.958% |
Why do some sellers not accept VA loans? Some sellers believe an offer with a VA loan won't close or will take longer to close, will involve a borrower who lacks funds and/or has poor credit, and will result in having to make repairs or lower their price due to strict VA property requirements.
VA loans help military service members, veterans and their families buy homes. Often, they have more favorable terms than conventional mortgages, including no down payment and better interest rates.
VA loans are attractive because they usually don't require any down payment. This is an important benefit for home buyers who are short on cash.
Typically, when you compare rates for the average 30-year VA loan and a 30-year conventional loan, VA loans usually have lower interest rates. The percentage difference tends to sit between 0.25% – 0.42%.
Lenders tend to charge lower rates for VA loans than they do on conventional loans, which means you can save a lot of money on interest in the long run, especially over a 30-year loan.
One disadvantage of a VA loan is the additional cost of the VA Funding Fee. This fee goes straight to the VA and varies on a purchase from 2.3% to 3.6%, depending on whether you've used the benefit before. Buyers can lower their funding fee by putting down at least 5%.
The fictitious reason why realtors don't like VA loans
They often wrongly presume that deals with VA loan buyers are riskier, cost more, and are more challenging to close than other types of loans. Some of them even believe that the home sellers will have to pay for the buyer's closing costs.
Some sellers may be cautious of accepting VA offers due to misconceptions or past experiences with this type of loan. VA loans can sometimes take longer to close, largely due to the appraisal process and property requirements put in place.
Who pays closing costs on a VA loan?
You'll have to pay the closing costs when you're signing the final paperwork of your home mortgage process. At the mortgage closing, you'll have to bring any down payment and closing costs for the loan – although it's important to note here again that mortgages insured by the VA don't typically require a down payment.
It can be a good idea to improve your credit score, even when it's higher than the minimum your lender requires for a VA loan. That's because a higher credit score can improve your chances of getting approved for a VA loan and might help you get a lower interest rate, too.
The U.S. Department of Veterans Affairs doesn't set a specific VA loan credit score requirement. Lenders, however, can set their own minimum requirements for a VA loan. Most require a score of at least 620, but some go as low as 500.
- You're receiving VA compensation for a service-connected disability, or.
- You're eligible to receive VA compensation for a service-connected disability, but you're receiving retirement or active-duty pay instead, or.
VA loans do not require a down payment as long as you have full entitlement. If you have partial entitlement, you may need a down payment depending on the loan size you're seeking. A recent national survey found that only 3-in-10 Veterans know they can buy a home with zero down payment.
For all purchases, according to Ellie Mae, 74.3 percent of VA loans closed, compared to 74.1 percent of all mortgages. Conventional (non-government did slightly better than VA, with a 75.2 percent closure rate. In short, VA mortgages will close at a high rate and are less likely than the average loan to fail to close.
The 30-year mortgage rate dropped to a new historical low of 2.68% by December of 2020. In 2021, mortgage rates hovered between 2.70% and 3.10%, which gave many borrowers the chance to refinance or purchase properties at the lowest rates on record.
VA loans tend to have lower interest rates than conventional mortgages or FHA loans. Additionally, the closing costs on VA loans tend to be lower than for other types of mortgages. While VA loans have fixed interest rates, FHA loans can have fixed or adjustable interest rates.
Sellers often prefer conventional buyers because of their own financial views. Because a conventional loan typically requires higher credit and more money down, sellers often deem these reasons as a lower risk to default and traits of a trustworthy buyer.
If you have an existing VA-backed home loan and you want to reduce your monthly mortgage payments—or make your payments more stable—an interest rate reduction refinance loan (IRRRL) may be right for you. Refinancing lets you replace your current loan with a new one under different terms.
Are VA loans bad for sellers?
VA loans are often the best option for qualified buyers, especially as compared to conventional loans, because of their low interest rates and little-to-no down payment requirements. They also benefit sellers by closing at a higher rate than other types of mortgages and giving homebuyers more purchasing power.
Myth 2: VA loans are less likely to close
Conversely, only 54% of homebuyers with a conventional loan closed. VA loans are incredibly competitive compared to conventional loans, with an average closing time of 42 days.
“So they're wanting to purchase a home that is in livable condition.” VA loan inspectors look for certain issues with a home, like wood rot or missing flooring, that must be fixed before the sale can proceed. Some sellers reject VA loans because of that inspection, assuming it'll complicate the sale.
Common Reasons for VA Loan Denial in Underwriting
Your credit score plays a crucial role in the mortgage approval process. If there have been significant changes in your credit history since the time you submitted your loan application, it could lead to a denial.
By far, the single-largest benefit of the VA loan is that qualified Veterans can purchase without a down payment. This huge advantage allows Veterans and service members to buy homes without having to spend years saving for that typical lump-sum payment.
