How Are VA Mortgage Rates Determined?

If you're in the market for a new home, chances are you've researched your current mortgage options. Although external considerations, such as your credit score and income, will affect the loan terms you're offered, there can be a vast difference in the costs and interests of mortgages you qualify for. If you're an active military member or armed forces veteran, a VA loan is one excellent mortgage option you should look into. 

A VA loan is a non-conforming mortgage guaranteed by the Department of Veterans Affairs. They're designed to help individuals who have served in the military purchase homes at better rates. Although the government backs the loans, they're issued by private lenders, such as credit unions or local banks, in the same way as traditional mortgages. 

How Are VA Mortgage Rates Determined?

VA mortgage rates are determined similarly to traditional loans. The actual rates often fluctuate due to the mortgage and housing markets, so the rates granted to one borrower may not be the same as those given to another. The overall economy also has a lot to do with mortgage rates. 

Additionally, personal factors can affect the rate you receive on your VA loan. A few examples of these personal factors include:

• Your credit score
• Your debt-to-income ratio
• Whether you choose a 15- or 30-year loan
• Your down payment amount

Qualifying applicants aren't required to put a down payment on VA loans. However, doing so can help you lower your interest rates and monthly payments. 

How Do You Qualify for VA Loans?

Unlike conventional mortgage options, not everyone is eligible for a VA loan. To qualify, you or your legal spouse must be a qualified:

• Veteran
• Active-duty service member
• Current National Guard or Army Reserve member
• Former National Guard or Army Reserve member

Depending on the type of military service you provide, there are additional guidelines that may apply. For most military branches, you or your legal spouse must have served at least 181 days of active service during times of peace or 90 consecutive days of active service during wartime.

The National Guard or Army Reserve members qualify after at least 6 years of service, with one exception. National Guard and Army Reserve members serving under Title 32 qualify for a VA loan after 90 days of service if at least 30 of those days were served consecutively. 

Proving Your Eligibility

To prove your eligibility for a VA loan, you'll need to apply for a Certificate of Eligibility or COE through the U.S. Department of Veteran Affairs. This certificate shows your potential lender you've met the service history requirements for the VA loan. Applications can be done online or through the mail. 

To be approved for a COE, you must meet the minimum service history requirements detailed in the above section. If you received a dishonorable discharge, you won't be approved for a COE, regardless of your service history. 

What Are the Minimum Requirements for Properties?

It isn't only the borrower that has to qualify for a VA loan. The property the loan is used for must also meet specific minimum requirements. These requirements are set to ensure active-duty and former military members are living in clean, safe homes. 

The most crucial home requirements for VA loans include:

• All mechanical systems must be in working condition (including some form of heating).
• Basements and crawl spaces must be dry with no obvious flooding issues.
• The roof can't have any obvious or significant signs of disrepair.
• There can't be any active termite problems.
• There can't be any mold, rot, mildew or serious structural problems.
• All lead paint must be removed, if applicable.
• The home must be used as your primary residence. 

However, this list isn't exhaustive, and there may be other requirements for homes purchased with VA loans.