Just like conventional loans, VA loans can come as fixed- or adjustable-rate mortgages (ARM) and last up to 30 years. Before deciding to finance a home with a VA loan, learn about the different types of loans available so you know what you'd like before you talk to a VA-approved lender. Get acquainted with different loan types be reading the information below.
Adjustable-rate mortgages have a fitting name. The initial interest rate of an ARM tends to be below the market rate. For the remainder of the loan's life though, the interest rate may go up or down. ARMs come in hybrid forms too, meaning the interest rate is initially fixed for at least three years. After that, the interest rate may change annually. For hybrids, there are caps on the first adjustment made and caps on the interest rate for life of the loan. Remember, it's possible to refinance a loan with a VA Streamline to go from an ARM to a fixed-rate mortgage.
Fixed-rate mortgages also have a fitting name. When military homeowners decide to get a fixed interest rate, that's what they'll get: an interest rate that is set. Interest rates for VA loans are similar to, but usually lower than, traditional mortgages. The VA's guarantee of up to 25 percent of each loan allows VA loan borrowers to negotiate their rates. If the market interest rate drops and a fixed rate is then higher, military homeowners can refinance with a VA loan to lower their rate.
Common loan lives are 15 and 30 years. Before you get a VA loan and lock in an interest rate, you can actually run some rough number to see how much you'd be paying for 15 or 30 years. This gives you an idea of which length is better for you and how you'd like to parcel out your payments. To get a better idea of what your loan could look like, talk to a VA loan specialist.
Not every military homebuyer qualifies for the lowest interest rate on a VA loan. Regardless, the rates on this exclusive home loan option have the ability to fare better than rates on conventional loans due to being guaranteed by the VA. To earn the best possible interest rate on your VA loan, there are a few things you can do to improve your chances. Check out these tips on what you can do to get a better interest rate.
If you don't know your credit score, then it's time to check it. AnnualCreditReport.com allows you to see reports from TransUnion, Equifax and Experian. After seeing your report, you can pay to see your credit scores. This will give you an idea of how to bolster your credit. Maybe you need to pay off some debt or maintain your good standing for awhile.
You'll have to keep an eye on the housing market and the Federal Reserve to see where interest rates stand. VA loans boast competitive interest rates, but watching the market is a decent indication of what you can expect. Interest rates change within the life of the loan and whether it's adjustable-rate mortgage (ARM) or fixed-rate mortgage.
Although the VA has no requirement on borrowers' financial reserves, VA approved lenders like to see that military homebuyers will be able to make monthly payments in addition to other expenses. Either financial reserves or an income that will cover the payments should suffice. The easier it will be for you prove and make the payments, the better interest rate you'll earn.
Talk to a VA-approved lender. An expert on VA loan rates can help you follow through with the aforementioned tips. They'll be able to help you get pre-approved for a VA loan and find out whether you're eligible. Before performing a credit report, they'll be able to tell you about the process and what affects VA loan rates.