When you want to apply for a VA loan, an important question will cross your mind. And, that is ‘what lending rate am I eligible for?’ As a veteran, the VA loan program serves as an avenue to provide you with loans at favorable conditions; in order to purchase your dream home. But, Why Are Some VA Lenders’ Rates Higher Than Others?
With the strict, rigid and unfavorable criteria set by conventional mortgage lenders, VA loans provide a more fluid environment to accommodate your needs. These VA lenders may be either private or government entities that funds, originates and transfers a loan in conjunction with the Department of veteran affairs. The major advantage for you as a VA borrower is that the Lenders participating in VA loans are approved by the Government and offer more flexible lending rates.
However, since the VA itself does not issue loans directly to you, the lenders are responsible for enforcing people specific conditions and lending rates. This has led to a disparity in rates among lenders. Read more to know Why Are Some VA Lenders’ Rates Higher Than Others?
VA Loans: Why Are Some VA Lenders’ Rates Higher Than Others?
There are several factors that will cause a variation in your lending rate among VA lenders, some of which includes;
- Your Credit score:
In loans generally, a good credit score is an advantage for you. And, with the flexible conditions of VA loans, it is an even greater starting point. Most lenders have credit score benchmarks above which they operate; and, these benchmarks vary from lender to lender.
If you hope to apply for a VA loan at a low lending rate, it is best to ensure that you have a credit score that surpasses a lender’s benchmark. The most commonly accepted minimum credit score is 620. However, with the spontaneity at which credit score ratings change when fiscal habits are improved, you can become eligible for loans at lesser lending rates; if your credit score rating improves. In essence, lenders with higher credit score benchmarks provide lesser rates for you; while lenders with lower benchmarks charge higher rates.
- Down payment:
Owing to the fact that you can acquire VA loans without necessarily making down payments, lenders across the globe have various limits that can be borrowed before the need for a down payment is factored in. In most counties, you can borrow a sum of $417,000, above which you will be required to make a down payment. This means that lenders will provide a lower lending rate for you if you are willing to make a high down payment.
- The amount you intend to borrow:
Among lenders, the amount of loan greatly contributes to the lending rates charged. If you plan to apply for a jumbo loan, Lenders are more likely to offer you higher rates. These jumbo loans exceed the amount quoted as limit for a particular region. A good way for you to lower the rate is by making a stipulated down payment as agreed.
- Your Debt to income ratio (DTI ratio):
Your debt to income ratio plays a big role as regards to your eligibility for VA financing. It also determines the nature of lending rates quoted to you by lenders. The generally accepted DTI ratio for VA loans is 41%. Lenders that accept a high debt to income ratio attach a higher lending rate to loans, this means that you stand a better chance of receiving favorable rates if you have low DTI ratio.
In conclusion, depending on your fiscal conditions, different lenders will offer you different rates. It becomes your decision to consider the best loan conditions suitable for you.