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VA Loan Interest Rate Facts

By
Mortgage and Lending with www.OneTimeClose.com

If you’re a first-time home buyer, chances are you have many questions about VA loans. There are plenty of myths and not-quite-true assumptions to dispel about VA home loans; some believe the Department of Veterans Affairs lends money, for example, rather than issuing loan guarantees.

The VA only insures the mortgage, it doesn’t issue the loans. That’s an example of a VA loan myth; a good example of a VA loan half-truth is related to interest rates on the mortgage.

The Department of Veterans Affairs official site states, “VA no longer prescribes interest rates for VA-guaranteed loans. The interest rate is negotiated between the veteran-borrower and the lender to allow the veteran to obtain the best available rate.” While the VA may have, at one time, “prescribed” the interest rate, the rules have since changed.

That does not mean there are no controls on interest rates for VA home loans, but those controls are general guidelines rather than a specific rate. VA loan interest rates must be “reasonable and customary”.

While the VA does not set interest rates, it does expect the borrower and lender to stick to their agreement regarding those rates. VA rules say the lender cannot change the interest rate–even with an agreement with the borrower–by more than one percent without documentation.

The rules also require a “re-underwriting” of the original VA loan application to make sure the borrower is still able to qualify for the loan at the new interest rate. The new interest rate must also be acknowledged in writing by the borrower.

It’s easy to see that VA regulations in this area are designed to protect the borrower, but also would seem to insure any changes which do occur on the interest rate are not arbitrary or done lightly. Even a change of one percentage point of interest can, over the lifetime of a 30-year VA mortgage, have a big effect on the cost of the loan.

The VA Lender’s Guide addresses interest rate changes, stating that a proposed change in the interest rate may be permitted “as long as no lender/borrower agreements are violated.”

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Comments (1)

Dan Edward Phillips
Dan Edward Phillips, Humboldt and Del Norte Counties, CA - Eureka, CA
Humboldt and Del Norte Counties, CA

Good Morning Bruce, very interesting input on VA interest rates.  It is appericated.

Jun 25, 2011 01:58 AM