Can I Buy Down My VA Rate With Points?

When you’re trying to buy or refinance your house, a lot of things become a numbers game. Can you raise your credit score to lower your interest rate? Can you come up with enough money to cover the closing costs and still make your monthly payments? It might feel like you’re doing a lot of math with very little control.

But there is one area where borrowers are firmly in the driver’s seat: discount points. 

What are points on a VA loan?

In the mortgage world, points (also called discount points) give borrowers a way to pay money upfront in exchange for a lower interest rate. 

Points cost 1% of the loan amount. Let’s say you’re buying a house for $450,000. With a VA loan, you don’t have to put any money down. With a 0% down payment, your loan amount is $450,000, too. So if you want to buy one discount point, that would cost you $4,500 ($450,000 × 1%). 

Why would you want to pay extra money? The answer’s in the name. That discount point gives you — you guessed it — a discount. Specifically, it lowers your interest rate. 

With most VA lenders, one point lowers the interest rate by 0.25%. You can buy multiple points, potentially bringing your rate down further. 

You can use our mortgage calculator to figure out if points make sense for you. Try moving your interest rate down by 0.25 or 0.5% to see how much you could save each month. 

Then, you can use this calculation:

The cost of the points ÷ The amount you’d save each month 

That will tell you how many months it will take you to break even. If you think you’ll be in the house beyond that, you start saving money thanks to your points. 

If you might want to buy points, there are a few things you should know. Those vary depending on whether you’re getting your VA loan to buy a house (i.e., a purchase loan) or to refinance your current mortgage. 

Discount points for VA loans to buy a house

With a VA purchase loan, points work in a pretty standard way. 

Your lender determines how much each point brings down your interest rate (the 0.25% reduction is the standard, but it’s not a VA requirement). If you agree to buy one or more points, you pay that cost upfront at the closing table. All of that mirrors what happens with mortgages in general. 

There’s one little wrinkle with VA loans, though. Remember how we said that the point costs 1% of your loan amount? That’s true even if you decide to roll your VA funding fee into your mortgage, increasing that total amount. 

Let’s go back to our example of the $450,000 home. If it’s your first time using a VA loan and you’re putting 0% down, your funding fee is 2.15%. For the $450,000 house, that’s $9,675. 

If you roll that into your loan, your new loan amount is $459,675. As a result, each discount point will cost about $4,597. That’s roughly $100 extra with your funding fee included. 

The good news? The seller can help to cover the cost of those points. The VA allows for seller-paid points. 

If they’re buying points appropriate to the market, they don’t count toward your seller concession limit. But if they’re paying for points over and above what’s standard in the mortgage world at the time of your purchase, they can’t exceed the VA’s 4% seller concession cap. Your lender can help you navigate the details here. 

Discount points for VA refinances

If you're refinancing your VA loan, you might be able to roll the cost of those points into your new loan amount. It gets a little complicated, though, so let’s break it down based on the type of VA refinance you’re exploring.

IRRRLs

If you want to get an interest rate reduction refinance loan (IRRRL), you can roll a max of two discount points into your loan. In other words, you can use a bigger total loan amount to pay for one or two points to buy down your mortgage rate. 

If you want to apply more than two points for an even lower rate, you’ll need to pay for any additional points in cash. 

VA cash-out refis

With a VA cash-out refinance, you technically can’t roll points into the new loan amount. But with this kind of refi, you’re taking on a bigger loan amount to liquidate some of your home equity into cash. And you can use that cash however you’d like. That includes paying for discount points.

This isn’t some sneaky workaround. The VA specifically spells this out in its official rules. Click “Topic 7. Discount Points” and scroll down to the cash-out refinance section to see for yourself. 

VA construction refinance loans

Different rules apply to construction loan refinances. If you’re exploring that situation, you’re allowed to roll as many points as is “reasonable” into your loan. The big caveat here is that when you total up your loan amount, closing costs, and the cost of points, that sum can’t exceed the reasonable value of the property. 

Using discount points to your advantage

With points, it’s all about doing the math. If you think you’ll be in the house with the loan long enough, they could save you some serious money over time.

A good VA lender can help you explore how your loan or refi would look with and without points. For help there, check out our list of leading VA lenders and their current interest rates. You’ll see any applied points called out in the “upfront costs” column.

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