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Ellie Mae Origination Insight Report VA Rates September 2016

VA Loans Can Lower Your Mortgage Rate

For mortgage applicants with military backgrounds, it can be downright cheap to get a loan.

But, if you're a military borrower, you're currently getting access to interest rates below what's available to U.S. civilians.

According to Ellie Mae, a mortgage software company whose software handles more than 3.7 million loan applications annually, VA mortgage rates routinely beat "market" ones by more than a quarter of a percentage point.

That's a huge difference in your housing bottom-line.

Additionally, VA mortgages get approved more easily that other loan types, and they grant exclusive access to the Interest Rate Reduction Refinance Loan (IRRRL), one of the fastest, simplest way to refinance your home loan.

VA Mortgage Rates Now 0.29% Below Conventional Rates

When you're looking for the best, lowest mortgage rate, the VA home loan is often where it's at.

In September, for the 29th straight month, VA mortgage rates beat rates for comparable mortgages via the FHA, and via Fannie Mae and Freddie Mac.

Since such data has been tracked by Ellie Mae, VA mortgage rates have beat conventional mortgage rates by 25 basis points (0.25%) or more on any given day, with gaps as wide as 150 basis points for some borrowers with less-than-perfect credit scores.

By contrast, FHA mortgage rates now beat conventional rates by only 8 basis points (0.08%).

VA borrowers also save on mortgage insurance, too.

Different from conventional, FHA, and other loan types, VA mortgages never require mortgage insurance - whether you put down 20% or nothing at all.

This "no mortgage insurance" benefit renders the VA loan a better option for most borrowers than conventional financing when down payments are between 10-15% of the purchase price; and, often when the downpayment is twenty percent or more.

Overall borrowing costs are lower with VA loans.

Why Ellie Mae Rates Differ From Freddie Mac

If you're shopping for a VA loan or any other loan type in the next few quarters, you're going to like what you see. Not only are mortgage rates cheap, but lenders are giving out more approvals.

Since earlier in the decade, lenders are loosening loan guidelines, approving more loans, and quoting mortgage rates more aggressively.

Consumers had been told that mortgage rates would approach five percent by the start of 2016. Instead, VA mortgage rates remain in the 3s.

This is terrific for home affordability.

In looking at Ellie Mae's most recent Origination Insight Report, though, astute observers will notice that Ellie Mae's "average mortgage rates" are higher than what's reflected in other national mortgage rate surveys, including the Freddie Mac weekly Primary Mortgage Market Survey (PMMS).

Ellie Mae's reported mortgage rates were approximately 40 basis points (0.40%) above Freddie Mac's, which is a large delta.

So, why are Ellie Mae's rates are higher than Freddie Mac's? There are three reasons.

1. Ellie Mae Reports Closed Mortgages Only

The first reason why Ellie Mae's rates are higher is because Ellie Mae's reported mortgage rates are based on actual closed mortgages with real customers and real lenders.

By contrast, Freddie Mac's published rates are based on what banks "quote". Quoted rates aren't "real".

To illustrate this point, a cash-out refinance loan will typically get quoted at higher rates than for a purchase loan; and buyers of a primary residence will typically get quoted at lower rates than buyers of an investment property - especially if more than 4 properties are already financed.

Ellie Mae's survey captures these differences. Freddie Mac's does not.

2. Not All Borrowers Want To Pay Discount Points

The second reason why Ellie Mac's rates are higher is than Freddie Mac's reported rates is because of discount points paid.

Paying discount points give borrowers access to lower rates and it's standard for Freddie Mac's surveyed banks to report rates "with discount points". Discount points are optional, though, and when discount points are waived, mortgage rates go up.

So, because few borrowers pay discount points, Ellie Mae's actual rates averages higher than Freddie Mac's quoted mortgage rates.

3. Ellie Mae Tracks Borrowers Of All Credit Types

The third reason why Ellie Mae mortgage rates are higher than Freddie Mac's is because Freddie Mac's rates are geared at prime borrowers only.

A "prime borrower" is one who is purchasing a single-family home as a primary residence with high credit scores; and ample income and savings.

The Ellie Mae report, by contrast, accounts for all borrowers of all types, including those purchasing 2-unit homes; and those purchasing vacation residences and rental homes.

Because Ellie Mae tracks a variety of loans and Freddie Mac does not, Ellie Mae's average should always exceed those from Freddie Mac.

Should You Use Your VA Loan Benefits?

Military borrowers get access to VA mortgage rates as part of the VA Loan Guaranty Program, a program with more than 70 years of history.

VA loans can be used for either purchase or refinance and, because the Department of Veterans Affairs guarantees VA loans against loss, mortgage lenders can make available lower mortgage rates to VA loan applicants.

Aside from low mortgage rates, though, VA loans provide other benefits, too.

But, even if you plan to put 20% down, the VA loan may be your best choice.

This is because VA loans are assumable, which means that a VA home can be sold its VA financing "attached". In the future, having an assumable loan at today's low rates can be huge selling point.

If you lock a VA mortgage rate near 3.00%, the eventual buyer of your home can then get your same 3.00 percent mortgage interest rate - even if the then-current mortgage rates are 10.00% or higher.

Your home will be extremely attractive with its attached, assumable loan.

Using a VA loan instead of a conventional will also give you access to the Interest Rate Reduction Refinance Loan (IRRRL).

More commonly known as the VA Streamline Refinance, the IRRRL loan (pronounced "earl") allows VA homeowners to refinance without re-verification of income or assets. Not even a home appraisal is required to get approved.

With the VA Streamline Refinance, you likely have to do little more than show a good payment history and proof that the refinance will reduce your monthly housing payment.

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