A VA mortgage is a home loan option backed by the Department of Veterans Affairs (VA). The VA designed this program to help veterans, active-duty service members and their families purchase homes with favorable terms. VA loans stand out by offering competitive interest rates without the need for a down payment or private mortgage insurance.

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Did you know that VA loans have a lower-than-market average interest rate compared to other loan types over the last few years, according to Optimal Blue data? This is partly because the VA guarantees a portion of the loan, effectively reducing its risk for lenders. That also means the VA loan rates typically beat out conventional and even FHA loan rates.

With mortgage rates significantly fluctuating over the past couple of years, it’s understandable why so many homebuyers are paying closer attention to rates right now. After all, even a slightly lower interest rate can save homebuyers thousands over the lifetime of their loan.

Factors That Determine VA Loan Rates

As you can probably guess, many things impact VA loan rates—from the current state of the economy to personal factors such as your current credit score.

Your VA lender or financial advisor can help you get the best rate possible based on these individual and market factors. To get a head start, check out these top components that can influence VA loan rates.

Market Conditions

Part of your VA loan rate will be based on current market conditions and the economy’s present climate. Mortgage rates rising or falling are due to the current condition of the mortgage market, inflation, monetary policy, gross domestic product, and many more intricate factors.

These elements impact the housing market across the board. Lenders can’t control the level of influence that market conditions have on interest rates. Although the economy’s current state affects loan rates, it is just one piece of the puzzle.

Credit Score

If you ask your lender, “What are VA loan rates today?” they’ll probably answer, “It depends.”

They can typically tell you what VA loan rates are based on a 720-credit score, but this number is meant to give a ballpark rather than a set rate. While interest rates can be considered high or low on average, a lender must perform calculations based on your financial standing to provide a VA loan rate for your situation.

Personal credit scores play a huge role in determining interest rates. This is because borrowers with higher credit scores are considered less of a risk to lend to. On the other hand, those with low credit scores are considered as having a higher risk of default, resulting in higher interest rates.

As such, making payments on time and keeping credit card balances low are excellent ways to improve your credit score. Since a credit score can also affect the loan’s amount and term length, it is one of the top items borrowers should keep an eye on when purchasing a new home.

VA Loan Term & Amount

What is the loan term, and how much will you be borrowing? These numbers work together with your credit score, market conditions, and other factors to determine your VA loan rate.

Think of these numbers as though they were on a sliding scale. Higher loan amounts are generally associated with higher interest rates because they are considered a greater risk for lenders. The longer someone has to pay off a house, the more time there is for unpredictable financial burdens to arise.

On the flip side, shorter loan terms and smaller loan amounts sometimes come with lower interest rates. Whatever term length and loan amount you choose, you should ensure the interest rate and monthly payment make sense for your current financial situation.

Down Payment

Though down payments aren’t required for eligible service members with the VA program, making a down payment will likely affect your rate. Some Veterans will opt to put down a standard 10%-20% down payment to lower their interest rate, even though they technically don’t need to. Another advantage to putting a down payment on a VA loan is that it can lower the VA funding fee, a cost that helps fund the VA loan program.

At the end of the day, the less money you have to pay lenders back, the less financial risk they carry when they loan you money. If you pay more upfront, your interest rate will typically lower accordingly.

Existing Debt (Debt-to-Income Ratio)

The debt-to-income (DTI) ratio compares the total amount of major monthly debt a person has to their gross income. The lower your debt and higher your income, the better your DTI ratio—and, in some cases, the lower your interest rate.

Lenders care about your DTI ratio because it’s a good indication of what you can afford each month. If you can comfortably afford your mortgage with your current income alongside your existing debts, you represent a lower financial risk to lenders. But if you have a lot of debt, your interest rate will be higher.

Tips to Get the Best VA Loan Rate

Here are three tips you can use to ensure you qualify for the lowest VA loan rate possible.

1. Improve Your Credit Score

The biggest determining factor of your VA loan rate will be your credit score, so it’s a good idea to take a hard look if you are considering purchasing a home.

You can considerably raise your credit score by paying off outstanding credit cards and keeping your credit balances low. This will show your lending company that you’re a lower risk to lend to, resulting in a lower VA loan rate.

2. Shop Around

If you’re considering purchasing a home, you’ve probably heard the phrase “shopping around.” Many borrowers choose to rate shop with different lenders to ensure they receive the best VA loan rate. This means that they submit loan applications to multiple lenders hoping to receive a selection of desirable options.

Many homebuyers fear that rate shopping will have a negative impact on their credit score. However, according to Experian, borrowers can shop rates with different lenders between 14-45 days without their credit being heavily impacted. It’s important to note that this “shopping window” varies from lender to lender, so checking in with each before submitting an application is essential.

You can also apply for the same loan amount with each lender to minimize your credit score being dinged as much. By doing this, you’ll show credit reporting agencies that you are seeking the best rates for a single type of loan rather than attempting to hold multiple loans at once.

3. Buy Discount Points

Discount points can be an excellent way to lower a VA loan rate. They are a fee that homebuyers can pay for a lower interest rate on their home. Think of discount points as buying down your interest rate. They aren’t mandatory for a VA loan, but they are a good option if you want a lower interest rate and have the funds to buy them down.

Discount points generally cost about 1% of the loan amount, so you would be paying more upfront, but discount points can lower your interest rate by 0.25%-.50% on average. For some borrowers, paying for discount points and buying down their interest rate is worth the immediate cost.

While there are no official discount point requirements for VA loans, individual lenders typically set the maximum amount they will let you buy.

It’s always a good idea to check with your lender regarding their discount points policy. They can also perform the calculations to tell you the difference discount points can have on your VA loan rate.

To learn more about VA loans and ensure you get the most out of your benefits, check out our page on VA loan FAQs, VA loan property options, and VA loan assistance programs.

You can see how you’d be eligible to borrow with our VA loan calculator.