Credit Scores and Your VA Mortgage Rate
Getting a valid VA mortgage rate quote, or any mortgage quote for that matter, can be a confusing process. VA mortgage rates can vary based upon points paid, the length of an interest rate lock and even loan amounts. In addition, part of the VA approval process includes validating your income, your employment and your credit.
And speaking of credit, while the VA does not require a minimum credit score, most VA lenders do in fact have their own internal guideline, typically asking for a credit score to be 620 to 640. But does that affect your mortgage rate? Does a lower credit score mean a higher rate?
VA lenders typically establish their own internal grading system and while not all lenders follow the exact same protocol, it’s a similar application form lender to lender. Overall, the better a credit score, the better the rate will be.
For example, someone with a credit score of say 770 might be offered a 30 year fixed rate on a $200,000 VA loan at 4.00 percent with no points. Someone who has a 680 credit score might find that same 30 year fixed rate on a $200,000 loan at one-quarter of one point, or an additional $500. What about a lower score? What about the minimum? A VA loan at 620 might require another quarter or half point for that same 4.00 rate.
Yet as with all rate quotes, the borrower has a choice of whether or not to pay any points whatsoever. Instead of paying one-half point on a $200,000 loan, or $1,000, the borrower may elect to take a higher rate. Not much higher, but higher nonetheless. In this example, in lieu of $1,000 the borrower may elect to increase the rate by one-eighth of one percent to 4.125.
Credit scores can affect your interest rate and not all lenders follow the same matrix, but most VA lenders do provide slightly better rates to those with excellent credit.