While homebuyers have been locking in historically low interest rates for over a year, most won’t — and can’t — get the lowest mortgage rates in homebuying.
And that’s ok. The lowest interest rates are reserved for veterans and active-duty servicemembers with VA loans — and have been since at least 2014.
It’s actually quite comforting to know that homebuying is made a little easier for the men and women who serve their country. Does it completely repay them for their time and sacrifice? Not even close. But it falls into the category of “The Least We Can Do,” and it’s nice to see that being honored.
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VA rates during the pandemic
While the average 30-year VA rate is consistently lower than FHA and conventional, the pandemic seemed to widen the margin. For example, in March 2020 the difference between the average VA and conventional rates was just 0.2%. By March 2021, that gap had grown to .3%, according to mortgage software company ICE Mortgage Technology.
That may not seem like much on paper, but in February 2021 there was a spread of 0.32% between conventional and VA loan rates. And over a 30-year loan, that adds up.
In fact, it’s about a $60-per-month difference on a $350,000 30-year loan.
Why does VA offer the lowest mortgage rates?
Quite simply, VA rates are lower than any other major loan program because the federal government backs them.
The Department of Veteran Affairs (VA) doesn’t actually set interest rates. However, when lenders know a loan is insured by none other than the U.S. government (which has only defaulted on its debt once in nearly 250 years), they are willing to lend money at a lower interest rate.
And, again, it seems only fair the lowest rate is reserved for military veterans and personnel.
According to Business Insider, enlisted service members make less than $20,000 a year when they first join. Although pay increases with experience and rank, it’s a steep hill to climb and many are giving up more lucrative opportunities to serve their country.
VA limbo: How low can the lowest mortgage rates go?
How low can VA rates go? Well, if VA buyers play their cards right, they can get extremely low interest rates right now.
First, the market is in a prime position with the 30-year fixed rate still near all-time-low territory despite recent upticks. It’s hard to ask for a better starting position than that.
Then, make sure you’re coming to the table with good credit, solid income and as little debt as possible. Improving these factors should improve your interest rate. You can also consider a 15- instead of a 30-year loan.
Finally, shop around. Talk to at least three lenders on the same day to get a sense of what a “good” interest rate is. (Spoiler: It’s a VA loan, they’re all going to be good.)
But don’t just focus on the lowest interest rate, ask about fees, too. You may find a rock bottom interest rate and get gouged by loan fees. Find a lender that offers the right balance of interest rates and fees. Additionally, find a lender that truly knows VA loans. There are some nuances to the program that VA loan newbie lenders could miss.
Who is using VA loans?
The VA reserves these loans for eligible veterans, active-duty servicemembers, and some surviving spouses. You can learn more about service minimums, credit and income requirements and how to get your certificate of eligibility (COE) here.
Here’s a snapshot of who is getting VA loans by service period or current status.
Most loans are going to restored entitlement buyers, Gulf War veterans, and active service personnel. However, even the WWII and post WWII veterans are still getting in on the action.
Due to low interest rates and no private mortgage insurance, a VA loan is perhaps the best mortgage product on the market.
Capture your rock-bottom VA loan rate while they are still low.
*A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.