The TRUTH About Low VA Teaser Rates
Low “teaser” rates are common in the mortgage industry. Let’s discuss all loan programs, then we’ll describe why advertisers present extremely low rates, relative to the typical market rates, ESPECIALLY for VA streamline refinances or IRRRLs.
What does the consumer want? Borrowers want the lowest rate with the lowest payment, PERIOD. However, most borrowers don’t invest the time to understand the intimate relationship between rates and fees, primarily…POINTS (charged at time of origination.) Bottom line, when comparing traditional 30 year fixed rates, the more points you pay, the lower the rate – it’s a trade-off – a costs / benefit analysis; it’s just math. What about the Annual Percentage Rate or A.P.R. that should be the great equalizer that discloses up front the costs associate with achieving these low rates? BAH! It’s a law to disclose the A.P.R., but improper (false) A.P.R.s are as common as grains of sand on the beach! It’s too difficult a task to police the advertisers, so they put out some pretty aggressive A.P.R. info to tease you.
What about the “ridiculously low rates” you see online and in other media? They are almost always Adjustable Rate Mortgages or ARMs. They usually have a lower fixed rate for only 3, 5 or 7 years, then they become adjustable every six to twelve months. Let’s set those aside for now.
What about the difference between “Conforming” rates, “Conforming high-balance” rates and true Jumbo rates (say loans over a million, just for kicks.) From Conforming to Jumbo, the available rates move higher, so advertisers present the Conforming rates – obviously.
What about the changes in rates relative to credit score and loan-to-value? The higher the credit score and the lower the loan-to-value (LTV), the lower the available rate. If you’re an advertiser, you present your rates associated with premium credit scores and tons of equity! Obviously.
What About These Super Low VA Rates You See In Your Mailbox?
Ah! Now this is a topic that we love to talk about here at SoCalVAHomes, because our commitment towards active military and Veterans began with completing hundreds of VA streamlines before creating our unique and powerful programs for VA home buyers.
- Advertisers know that the phone rings when the rates presented are LOW. But to achieve those low VA rates, the following circumstances or scenario must exist.
- You must be applying for a Conforming loan balance, not a Jumbo loan balance
- You must have premium credit scores (720+), not scores from 600-659.
- You must be prepared to pay “Origination” and “Discount” points – as many as three (3pts.)
- Your loan must not exceed 100% loan-to-value, verified by an appraisal when you pay up to one discount point.
- Your loan must not exceed 90r0% loan-to-value, verified by an appraisal when you’re fees are exceeding one discount point. (These last two guidelines were installed on May 25th 2018) to further protect Veterans.
Most Veterans who are considering a VA streamline refinance or IRRRL have recently purchased their home using 100% financing, and therefore don’t have the equity (or the cash) to absorb the fees (points) being charged to achieve the lowest rates. These borrowers are simply excluded from qualifying for those rates, due to guidelines.
So, if you just bought your home with a Jumbo VA loan, with no down payment, and your credit score is 620, don’t expect to achieve the low VA rates you seen in your mail box.
If you’ve built up lots of equity, and you’re considering a Conforming loan amount, and your credit score exceeds 760, then you can decide if paying 3 points is worth achieving that low, LOW VA rate that has tickled your fancy!