How to calculate VA loan payments
There are a lot of perks that come with serving in the military, but few can hold a candle to VA loans. VA home loan calculations are a bit different from your standard loan, but if you keep a few things in mind (like current VA mortgage rates), you can use any calculator as your VA mortgage calculator.
Think of this page as your own VA loan calculator, helping you anticipate what your monthly VA loan payments could be so you can decide if it’s a good fit for you and your family.
Calculating how much of a VA loan you qualify for?
Before we can answer that question, it’s important to quickly review how VA loans work. Although it doesn’t provide mortgages itself, the Department of Veterans Affairs does guarantee 25% of the loan on mortgages offered by select VA-approved lenders. Only eligible members of the armed forces and, in some cases, their immediate family may qualify for VA-insured loans. Eligible parties may include:
- Active duty members
- Retired veterans
- National Guard and reserve force members
- Surviving spouses
There’s a common misconception that any service member — regardless of their service record — can receive a VA loan. But it’s a little more complicated than that, so you’ll want to confirm that you are eligible for a VA loan before we get too far into the weeds.
All set? Great! Let’s keep going.
With this type of home loan, the VA agrees to pay your lender 25% of the loan amount in the event you default on the mortgage. Your VA loan entitlement plays a major role in determining what size mortgage you can get without making a down payment. Every eligible service member has a basic entitlement of $36,000 for loans up to $144,000. That doesn’t mean your VA loan is capped at $144,000, though. There are also secondary — or second-tier — entitlements that vary depending on your county.
If you have full entitlement — that is, you have both your basic entitlement plus your secondary entitlement — you can qualify for whatever loan your VA-approved lender is willing to give you. With VA loans, there’s no set limit on the size of your mortgage.
Having said that, lenders will run risk assessments to decide financing terms, just as they would with any conventional mortgage. So, while there’s technically no maximum VA loan limit, it all eventually comes down to what your mortgage lender is comfortable putting forward.
How are my monthly VA loan payments determined?
If you’re looking for a VA loan calculator, then you’ve come to the right place. When determining how much you’ll pay each month for your VA home loan, these are the key factors you need to consider:
- Mortgage amount: Without a doubt, this is the single most important element affecting your monthly VA loan payments. Unlike a conventional mortgage, there’s no down payment to cover a percentage of the purchase price right off the bat, lowering your loan amount. Instead, the full purchase price of your home will be divided evenly into the principal, which makes up a significant portion of your monthly payments.
- Interest rate: Although VA loan interest rates are typically lower than conventional mortgages, lenders review the same risk factors as they would with any type of loan to determine the right rate for each borrower. That criteria includes your credit score, your debt-to-income (DTI) ratio, bond market performance and the Federal Funds Rate. Some of those things you can control — or at the very least influence — while others are completely out of your hands.
- Loan type: With a VA loan, you usually have the option of choosing between a 15-year or 30-year agreement. You’ll pay more interest over the life of the loan with a 30-year mortgage, but your monthly payments will be lower.
- Funding fee: We’ll get into what exactly the funding fee is in a moment, but for now, just know that this can be an added cost to your monthly mortgage, depending how you pay it.
- Property taxes: Borrowers who choose to go with a VA loan will usually need to set aside money in escrow to cover their property taxes. These costs are then baked into your mortgage installments.
- Homeowners insurance: Just like with your property taxes, VA loan borrowers typically pay for homeowners insurance through escrow. So, that’s another item to add to your monthly expenses.
That may seem like a lot to account for, but here’s one major benefit of a VA loan that you’re sure to love: There’s no private mortgage insurance (PMI) to pay. Ever. Compared with a conventional mortgage that may require you to shell out for PMI until you’ve established 20% equity in your home — those additional PMI payments don’t build equity, by the way — a VA loan can be pretty appealing. Of course, there’s still the matter of the funding fee to cover, but we’ll get to that in just a moment.
Be sure to gather up all of this information ahead of time when applying for a VA home loan so you won’t get blindsided by unexpected costs. By doing so, you’ll be able to predict your future mortgage payments, giving you plenty of time to budget for your recurring housing expenses.
It’s also a good idea to compare how much you’ll pay with a VA loan against other types of mortgages before agreeing to anything. Weigh your options with the help of various mortgage calculators to see how different loan options stack up.
Will I need to use a VA loan calculator for next year's payments?
Probably not, but it depends. Your monthly payment can be broken down into four categories: principal, interest, taxes and insurance (PITI). Assuming you have a fixed rate VA loan, those first two components will stay the same month after month since you’ve locked in your mortgage rate.
However, your property taxes and insurance premiums can fluctuate from year to year. In some cases, you may owe less, while other times you may owe more. As such, you’ll probably see some changes in your monthly mortgage payments, especially over the life of a 30-year fixed rate loan. That being said, those fluctuations could be pretty minimal, so it’s hard to say one way or the other how much they’ll impact your VA loan payments.
It never hurts to run different property tax percentages and insurance premiums through a VA loan calculator to get a sense of how changes in those figures might impact your monthly expenses.
Determining your VA loan down payment: how much do you need?
None! In the past, VA loan amounts were capped according to different counties and real estate markets. When a borrower wanted to buy a home with an asking price above that limit, they would need to cover the difference with a down payment. That’s no longer the case, though. As of 2020, qualifying members can apply for a VA loan of any amount without needing to worry about footing that up-front cost.
If you choose to go this route to buy a house, keep in mind that there’s still the matter of the funding fee to address. As of 2021, funding fees on VA home loans represent 2.3% of the purchase price. While that’s significantly lower than the 20% you might put forward on a down payment, it’s still a cost you’ll need to cover yourself.
The VA funding fee may sound an awful lot like PMI or an upfront mortgage insurance premium (UFMIP), just with a different name and a lower percentage of the sale price. It’s true that you can pay that expense at closing, but you also have the option to build that cost into your monthly mortgage payments. So, if you don’t have the cash handy to cover your funding fee at the time of the sale, you can always spread it out across the life of your home loan.
VA loans can be incredibly helpful financial tools for service members who are on the hunt for a new home. That’s especially true if you want to take advantage of low mortgage rates or avoid the up-front cost of a large down payment.
Although VA loans are backed by the government to protect against mortgage delinquencies, borrowers still need to exercise diligent fiscal responsibility to stay on top of housing costs. It’s always a good idea to use a VA loan calculator to determine how much money you need to set aside for your mortgage payments each month. That way, you can figure out what size home loan you’ll be able to budget for — not to mention, what kind of mortgage you can afford with the VA’s help.
When making a decision about this or any other home loan, be sure to talk to an experienced loan officer who can offer expert advice and help you figure out which home loan option is right for you.
Powered by Froala Editor