Mortgage rates have been steadily rising, and the effects are being felt across the housing market, particularly by veteran homebuyers using VA loans.

While VA loans offer many benefits—like no down payment and lower interest rates compared to conventional loans—veterans are still facing new challenges in today’s economic climate. For veterans, securing a home is a key part of transitioning to civilian life, and rising mortgage rates are complicating this process.

Current Mortgage Rates and the Impact on Veterans

As of 2024, mortgage rates are sitting at around 6-7% for conventional loans, compared to the record lows of 2-3% just a few years ago. For veterans, who typically access lower rates through VA loans, this still represents a significant jump in borrowing costs. The rise in rates has reduced purchasing power, made homeownership more expensive, and complicated refinancing opportunities.

Matt Schwartz, from Southlake Loans, explains, “Many veterans who were waiting to buy a home when rates were lower are now finding themselves facing higher monthly payments, which is making it harder to qualify for their ideal home.”

The impact of rising mortgage rates on veteran homebuyers can be broken down into a few key areas:

• Decreased Purchasing Power: As mortgage rates rise, the amount of house a veteran can afford decreases. For example, at a 3% interest rate, a veteran with a $300,000 loan would have a monthly payment of around $1,265 (excluding taxes and insurance). At 6%, that same loan results in a monthly payment of $1,799—an increase of over $500 a month.
• Fewer Homes Available: Higher rates are keeping many homeowners in their current homes, further tightening the housing inventory. With fewer homes on the market, veterans are facing more competition, and in some cases, prices are being driven even higher.
• Refinancing Becomes Less Attractive: Refinancing is one way veterans have traditionally lowered their monthly payments, but with rates higher now, the benefits of refinancing are greatly reduced. VA loans offer streamlined refinancing options, such as the Interest Rate Reduction Refinance Loan (IRRRL), but fewer veterans are choosing to refinance as the interest savings diminish.

Factors Contributing to Rising Mortgage Rates

Several key factors are influencing the rise in mortgage rates, and it’s important for veterans to understand these influences to better navigate the market.

1. Inflation: Inflation is one of the main drivers of rising mortgage rates. As the cost of living increases, lenders raise rates to offset the loss in purchasing power. The Federal Reserve has responded by raising interest rates to try and curb inflation, which directly affects mortgage rates.
2. Federal Reserve Policies: The Federal Reserve doesn’t set mortgage rates directly, but its actions greatly impact them. Over the last year, the Fed has raised interest rates several times in an effort to control inflation, which has resulted in higher borrowing costs for homebuyers.
3. Supply and Demand: The limited housing inventory, coupled with strong demand, has contributed to rising home prices. Veterans seeking to buy homes are facing bidding wars in many areas, which further complicates the home-buying process.

Predictions for the Future: Where Are Mortgage Rates and Home Prices Headed?

Looking ahead, many experts predict that mortgage rates will remain elevated throughout 2024, with the possibility of small declines if inflation is brought under control. However, a return to the historically low rates of 2-3% seems unlikely for the foreseeable future.

Levi Rodgers, from the Levi Rodgers Real Estate Group, explains, “We’re probably going to see rates stick around the 6-7% range for a while. There may be slight adjustments depending on inflation and the economy, but I wouldn’t count on seeing a dramatic drop in rates anytime soon.”

As for home prices, many areas are still seeing high demand, which has kept prices elevated. However, experts anticipate that the rapid price growth of the past few years will start to slow down, offering some relief to buyers. In areas where supply is particularly tight, such as urban centers and desirable suburbs, prices may remain high, but overall, the market is expected to cool slightly.

Expert Advice for Veteran Homebuyers

Veterans navigating this challenging housing market don’t need to feel overwhelmed. There are strategies they can employ to help them secure lower rates and better deals. 

1. Improve Your Credit Score

One of the best ways veterans can secure a lower interest rate is by improving their credit score. VA loans are more forgiving of lower credit scores than conventional loans, but having a higher score can still help veterans qualify for the best rates.

• Check Your Credit Report: Veterans should review their credit report for any errors or inaccuracies and take steps to correct them.
• Pay Down Debt: Lowering your debt-to-income ratio is one of the fastest ways to improve your credit score.
• Make On-Time Payments: Consistently making on-time payments on all bills and debts will have a positive impact on your score over time.

By raising their credit score, veterans can potentially lower their interest rates, saving them thousands of dollars over the life of the loan.

2. Shop Around for Lenders

Not all lenders offer the same rates and terms, so it’s essential for veterans to shop around and compare offers. Veterans should look for lenders who specialize in VA loans, as they may have more competitive rates and a better understanding of how to work with VA loan borrowers.

• Ask About Fees: Some lenders charge higher fees for VA loans, so make sure to ask for a detailed breakdown of all costs.
• Get Multiple Quotes: Don’t settle for the first lender you talk to. Get quotes from at least three different lenders to find the best deal.

3. Consider a Larger Down Payment

While VA loans don’t require a down payment, making one can lower the interest rate or reduce the VA funding fee. Veterans who can afford to make a down payment should consider this option as a way to save money over the long term.

• Reduced Funding Fees: Veterans who put at least 5% down will see a lower VA funding fee, which can result in significant savings.
• Lower Monthly Payments: A larger down payment reduces the overall loan amount, which lowers monthly payments.

4. Lock in Your Rate

Once you find a favorable rate, consider locking it in to protect yourself from future rate increases. Rate locks typically last 30-60 days, which gives veterans enough time to close on a home without worrying about fluctuating rates.

Where Veterans Can Get More Help

Veterans who are feeling uncertain about the current housing market can turn to various resources for help. VA-approved lenders, housing counselors, and real estate agents familiar with VA loans can offer personalized advice and guidance. Additionally, veterans should explore government programs designed to help with financial literacy and homeownership.

For more information on how VA loans work and how they can benefit you, check out the VA Home Loan Benefits page on the U.S. Department of Veterans Affairs website. You can also use a VA Loan Mortgage Calculator to estimate your monthly payments.

Conclusion

Rising mortgage rates are making homeownership more challenging for veterans, but with the right strategies and careful planning, it’s still possible to secure a home at a favorable rate. Veterans should take steps to improve their credit scores, shop around for lenders, and consider making a down payment to lower their monthly costs.