5 Steps to Help You Get the Best Possible Rate for Your VA Home Loan

Robin Kocherhans Robin Kocherhans / Published Aug 31, 2020, 6:15 PM / Modified Sep 27, 2023, 1:36 PM

A picture of a home with the text 5 Steps to Help You Get the Best Possible Rate for Your VA Home Loan

To get the best deal on your VA mortgage, there's some planning and work to do on your part. To help you with this, we've outlined some steps you can take in order to get better prepared for a VA loan.

Taking these steps will be worthwhile because the more prepared you are, the better your chances are of securing a better rate.

1. Clean Up Your Credit & Get Those Reports

VA mortgages do have lenient credit standards, but to secure the best rates, it's helpful to have a credit score on the higher end of the spectrum. In order to make that happen, one of the most important things you can do is get your credit report and look over the details.

According to the Federal Trade Commission, you're entitled to one free credit report every 12 months from each of the three nationwide credit bureaus:

  1. Equifax
  2. Experian
  3. TransUnion

Once you receive your report, you should start by checking for mistakes. If you find any, you'll need to file a dispute to get them corrected. Despite the hassle, this process is worth it, since it could have a huge affect on your FICO score.

If you have any questions or concerns about your credit report, you can get in touch with an affiliate from the National Foundation for Credit Counseling.

2. Calculate Your Debt-to-Income Ratio (DTI)

A very important step is figuring out how much you can spend comfortably on a mortgage. To do this, you'll need to figure out your debt-to-income ratio, or DTI.

The calculation for DTI is relatively simple. To get started, you'll need to determine what all of your monthly debts are and the average amount you spend towards them each month. When listing these debts, make sure to include your prospective monthly mortgage payment and estimated utility costs. Once you have that number, it's simply a matter of dividing it by your monthly paycheck.

Let's say, for example, that you have the following debts:

  • Car Payment = $250
  • Car Insurance = $100
  • Credit Card = $300
  • Prospective Mortgage: $1,100
  • Estimated Utilities: $250

In this example, your total monthly debt load is $2,000. Now, to finish the calculation, if your monthly paycheck is $5,000, you'd simply divide $2,000 by $5,000 to get a DTI of 40%.

Many lenders typically have a DTI threshold of 41%, so in this example, your DTI would show that you can afford an $1,100 mortgage. This makes you a more competitive borrower, which could help you secure the best rates.

3. Determine Your Residual Income

VA loans are unique because, in addition to the DTI calculation, they also have a residual income requirement. In fact, this requirement is one of the reasons why VA loans have the lowest default rate of any mortgage type.

When calculating your residual income, it will consider similar factors to your DTI ratio, but instead of dividing them by your monthly income, you'll be doing simple addition and subtraction and comparing the result to the VA's residual income chart.

If we go back to our previous example, you have $2,000 in major monthly debts (including the prospective mortgage payment and estimated utilities), and your income is $5,000. If you subtract $2,000 from $5,000, your residual income is $3,000.

Sounds pretty good, right? Well, we're not quite done yet. Next you need to compare your residual income amount to the VA's residual income chart to make sure your residual income meets their standards based on your family size and the area you live in:

Residual Income Chart for Loans Above $80,000

Geographic Area

Family Size Northeast Midwest South West
1 $450 $441 $441 $491
2 $755 $738 $738 $823
3 $909 $889 $889 $990
4 $1,025 $1,003 $1,003 $1,117
5 $1,062 $1,039 $1,039 $1,158

If, for example, your family consists of you, your spouse, and a daughter, and you live in Nevada, you'd need a residual income of at least $990. So, once again, based on this example, you'd be able to afford an $1,100 mortgage.

And, once again, because you're above the standard, you're a more competitive, less risky borrower, which only helps you qualify for the best rates.

4. Build a Cash Reserve

Even though VA mortgages do not require a down payment, it's still a good idea to have saved up a chunk of cash. These cash reserves will make it easier for you to qualify and will put you in a competitive position on your loan application.

Also, it's important to note that you will likely need to pay closing costs when you buy a home. While it's possible to get a "no closing cost" loan, the trade-off is that you get a higher rate. To put it another way, in order to get the lowest rate, you have to pay closing costs.

For VA loans, even though closing costs are limited when compared to the closing costs on conventional loans, you should still expect to pay around 2–5% of the home's purchase price. By having enough cash to cover these, you'll qualify for a lower interest rate.

5. Shop Around

After you do your part, it's time to shop around at a few different lenders. Lenders can have different rates, so getting quotes from at least a few of them lets you compare what theirs are and pick the one that's the lowest.

In addition, shopping around can even make it so lenders compete for your business.

If lenders come back with similar rates, you can play them against each other to see if they're willing to drop the rate they initially offered you. For example, if lender 1 offered you a 3.5% and lender 2 offered you a 3.24%, you can go back to lender 1 and see if they're willing to try to beat lender 2's offer.

Who We Are

Low VA Rates is an approved VA lender, and VA loans are our specialty. We have experienced mortgage professionals who have been issuing VA loans for years, so we know the ins and outs of VA mortgage products.

To get a quote or to ask any questions, you can call us at 866-569-8272 or live chat with us online.