What You Need To Know
- ✔ Getting a USAA loan requires a higher credit score
- ✔ USAA typically has higher APRs
- ✔ USAA is more strict than many other lenders
USAA VA Loan Score
USAA does everything, or at least it seems like it, so why wouldn’t they offer to finance your VA home loan? That’s a rhetorical question, you know they’ll finance a VA loan. The question is, how wise is it to go through USAA? Is it more difficult? Should they be trusted because they already work strictly with military members, their families, and veterans? We plan to answer all these questions so you can make only the most informed choice in regard to a USAA VA loan.
It’s no secret the USAA loans are pretty difficult to get, even as a military member. And if you don’t have a nearly perfect credit score, you’re looking at some significant interest rates, whether for a personal loan or car loan. But how does USAA stack up against other well-known, military-friendly lenders, like Veterans United?
USAA VA Loan Rates
Before we get too deep into this, you should keep in mind that interest rates fluctuate. You might qualify for the lowest interest rate available at 2.89% today, but the lowest interest rate tomorrow is 2.92%. Unfortunately, this isn’t like your credit score. You can’t fix something by paying a late bill and cause the lowest interest rate on the market to drop even lower. However, you can refinance later or take your chances if it will drop later.
Currently, as of this publication of this article, you’re looking at a 3.853% APR with rates potentially increasing after five years. A 3.250% fixed rate for a 30-year VA loan or 3.375% fixed rate for a 15-year fixed VA loan. So, yes, you get penalized in a way for electing to go with the 15-year loan, at least in terms of present interest rates. This is because lenders want to make sure they get their money. The rates above also assume you’re purchasing points (paying to lower your interest rate). The interest rates listed above also assume you have a minimum credit score of 740.
So, while the rates may seem good, you really have to read the fine print since USAA shows rates for those individuals with “very good” credit scores. Sadly, your rate is going to be significantly higher if you have anything less than “very good.” And this might be where USAA falls short. USAA’s VA rates are still lower than their conventional rates. And as far as policy and procedure go, getting your loan through USAA requires the same process.
Your first step, of course, is to find out how much you can afford to spend. And the higher your credit score, typically the more a lender is willing to give you. So, in this step, you need to get with a lender or bank representative and find out how much their willing to let you have. This way, once you actually find the house you want, you know how much negotiating you can do in regard to home prices. Of course, getting home for less than what you’re approved for would be great, but that’s not always how life works out, sometime you’ll get approved for the exact amount you need. That’s why it’s best to find out first how much you can spend. With USAA, after the check your credit score and if you’re approved, they’ll give you a letter showing your eligibility. The letter is good for 90 days (which is standard), so if things aren’t settled in that time-frame, you’ll have to go through the process again. This means you’ll have to get a second hard credit check (this too will affect your credit score). And since a lot can happen in 90 days, you might not get approved for as much the second time around. Of course, there’s always the possibility of getting approved for more.
You can also do your preapproval on USAA’s website, which makes things convenient. However, be prepared to send additional documentation via fax, email, or traditional mail.
Certificate of Eligibility
You might be a veteran or service member and can prove it with identification or your DD214, but that’s simply not enough to get approved for a VA loan. This is because not all service members and veterans qualify for a VA loan. Yes, most qualified, but not all and a lender isn’t going to take a chance on you without the proper certificate. This certificate is referred to a Certificate of Eligibility or COE. Your COE confirms that you qualify for a VA loan. Again, not everyone qualifies. An example would be someone who was dishonorably discharged. You could serve 14 years, but get kicked out under dishonorable conditions and not qualify. Or if you didn’t stay in long enough, you wouldn’t qualify either.
Talk with a Lender
After you’ve been pre-approved for a loan, showed your COE to get a VA-backed loan, your next step is to talk with a loan officer. If you’re going to use a USAA VA loan, you need to call 800-531-0341 to get your actual mortgage application started. The mortgage application is much more detailed than the initial loan approval.
Real Estate Rewards Network
USAA also offers a Real Estate Rewards Network. This network is a team of real estate agents that USAA has partnered with. Using one of these partners can even make you money. Of course, there are limitations, but generally, you can make anywhere from $350 to $24,000, whether you’re selling or buying a home. USAA also claims you’re eligible for an award even if you don’t actually get your mortgage loan through them. Unfortunately, you’re going to have to purchase a pretty pricy home to be eligible for the maximum $24,000. And by pricy, we mean $4 mil or more! If you’re looking at buying a more reasonably priced home, say, between $150,000 to $249,000 you’ll get $950 cashback. Again, there are limitations, so buying or selling a house through one of USAA’s partners don’t guarantee you any extra cash. Also, not all states are eligible, so that’s a bit of a letdown.
And if you’re sitting there, reading this and thinking, umm… you can’t buy a house with a VA Loan if it costs $4 mil! Well, you’re wrong, at least you will be next year anyway. If you haven’t heard yet the VA will no longer have a loan limit. Technically, speaking they didn’t have one before. The loan limit really referred to how much you could get without having to make a down payment. However, come 2020, no matter how large a loan you get, you won’t have to make a down payment that’s backed by the VA. However, you should keep in mind, just because there won’t be a loan limit doesn’t mean you can get approved for any loan you apply for. Lenders can still deny a loan. So, keep your credit score in the up direction and live within your means, because the qualification standards aren’t changing.
VA 5/1 Adjustable-Rate Mortage
So here’s the thing. USAA states that getting an adjustable-rate can help lower your cost. However, the adjustable-rate comes with the highest interest rate, with the exception of a 15-year fixed-rate. And considering an adjustable-rate can increase after 5 years, if you can, going with a fixed rate for the long-term might be a better option, if you qualify. If you don’t qualify, well then, you’re stuck with a higher rate. Typically getting a lower interest rate that’s adjustable is attractive, but most people refinance for a lower rate, a shorter loan payment period, or for a fixed rate. However, keep in mind, with a VA loan, refinancing without an advantage is pretty difficult.
For example, you purchased a house with a 3.25% interest rate. You’ve had the loan for four and a half years. Your loan is also adjustable and you’re afraid that your interest rate will go up in the next six months. So, you do some research, call around to various lenders about refinancing your home. Because refinancing from an adjustable-rate to a fixed-rate will guarantee your rate won’t go up, it’s typically not an issue to refinance. However, let us say you have a fixed-rate at 3.25%, you know that refinancing gives you the opportunity to consolidate debt.
However, the current interest rate on the market is 3.75%. You might not get approved for this refinance if you’re using a VA loan. But, let’s say you have a 30-year fixed rate for 3.25% and want to refinance for a 15-year fixed. However, the interest rate is 3.75%. If you qualify, you c\would likely get approved to refinance because even with the increased interest rate, you’ll save money in the end.
Currently, USAA’s fixed-rate (based on a 740 credit score) for both the 15 and 30-year VA loan are 3.375% (Aug. 8, 2019).
And since we’re on the subject of refinancing, USAA can help you do that too. Again, it only works if you can somehow come out on top. Just because you want to refinance doesn’t mean it’s a good idea. However, if you’re eligible and it makes sense, you might look into doing a VA IRRRL. Often this is referred to as a VA Streamline loan because you’re not required to take any money out of your own pocket like you might with a conventional loan.
However, your funding fee doesn’t disappear, unless of course, you qualify for a VA funding fee exemption. If you aren’t exempt, you can roll this fee into your new loan. But, keep in mind, you’re now going to be paying interest on that fee until you pay the loan off. Remember, just because you don’t have to make a down payment or pay fees upfront doesn’t mean you shouldn’t. Paying a little money on the front end will save you some money on the back end. So, make sure you do a little math before deciding not to pay these fees upfront or not do a down payment, that is if you can afford it.
If you’re a first-time homebuyer, there are several discounts and tax refunds you can take advantage of. Many lenders offer discounts to first-time homebuyers, so USAA isn’t really doing anything new here. However, if you qualify for a VA loan, you should probably go with that over a conventional first-time homebuyer loan, as the interest rates are significantly higher. Most lenders will still give you a discount, in closing cost for example, if you’re a first-time veteran/military homebuyer as well. So, basically, if you qualify, going with a VA loan is typically the better option.
We would like to point out, under USAA’s standards a first-time homebuyer is anyone who hasn’t purchased a home in the past three years. If you’re buying a house every three years, you’re doing something right! For the rest of us though, this means if you bought a house 10 years ago and it’s time to move, or you bought one three years ago, but the military is moving you (and you aren’t trying to get a property manager and worry about a renter) then you still qualify for first-time homebuyer benefits when you get your loan through USAA.
Just to recap, USAA offers VA loans. However, their rates are typically higher if you don’t have a “very good” credit score rating. With that being said, it’s also harder to get approved for any loan through USAA, at least at what many would consider a reasonable rate. USAA seems to have a few more rules with preapproving individuals as well. They wouldn’t qualify me because my civilian job didn’t match my military job. I literally had to sit there and try to figure out how my now desk job related to my then very physical job. It was really just a matter of wording, but annoying none-the-less.
On a positive note, they do have agents who know what they’re doing as far as the VA loan process goes. Unfortunately, if you live in a town that doesn’t deal with VA loans often, you might not have a lot of knowledge working your loan, if you go with a local lender. Really though, it’s best to do your own research on the terms and conditions of a VA loan and how and when you can save money. That way you aren’t relying just on only one individual to give you current, accurate information.
Remember, just because USAA is military friendly, it doesn’t mean they’re always the best option. There are definitely some advantages to going with USAA, especially if you can get the lowest interest rate possible. But, the advantage really depends on your current credit score and financial situation. Also, if you’re a current USAA member, that helps.
Basically, do your research. It might be time-consuming and cause you nothing but headaches, but at the end of the day, you’re getting ready to put down some major cash. So, be smart with it. Some lenders charge more fees than others. Meaning, even if they offer the same interest rate, you could save more money with one company over the other. But you won’t know unless you shop around. It’s like shopping for a car, but more intense. That doesn’t mean you shouldn’t go through the trouble. It’s your money and it’s a house you’re going to be living in it for a while. You should make sure you’re happy with your purchase at the end of the day. And that should include your loan cost and fees – you’re going to have to spend money, why spend more than you have to?