VA Loan Interest Rates

Who sets VA loan interest rates? That’s a common question asked by many looking for the best deal on a VA mortgage, but there are borrowers who aren’t prepared for the answer. The Department of Veterans Affairs does NOT set or regulate the interest rates on VA mortgages except to require that such rates be reasonable and “customary” for the type of loan and the market those loans are offered in.

What does that mean? For the borrower it means that you can’t be charge an exorbitant rate on a VA loan--as in an interest rate that is not more or less compatible with similar types of mortgage loans offered in that market and according to the borrower’s financial qualifications.

The lender and borrower are expected to negotiate the interest rate or at least agree upon it in writing. The interest rate you are offered by the lender may depend on a variety of factors including FICO scores, loan repayment history and other things.

In some cases a spouse’s income, credit and other factors may also be taken into account. This is especially true in community property states. VA loan rules say clearly in VA Pamphlet 26-7, “Verify and treat the income of a spouse who will be contractually obligated on the loan the same as the veteran’s income.
 
To ensure compliance with the Equal Credit Opportunity Act (ECOA), do not ask questions about the income of an applicant’s spouse unless the:
 
·  spouse will be contractually liable,
·  applicant is relying on the spouse’s income to qualify,
·  applicant is relying on alimony, child support, or separate maintenance payments from the spouse or former spouse, or
·  applicant resides in a community property State or the security is in such a State.”

Borrowers who have outstanding credit will be offered more competitive interest rates. Those who have marginal credit or borderline credit issues may not get the most advantageous rates but could still qualify for a VA loan depending on circumstances. Speak to your loan officer about your financial needs and goals if you are unsure whether your current credit scores or other factors might count against your getting the best VA loan mortgage rates.

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