VA Loan Calculator: Estimate Your Monthly Payments

13 Oct VA Loan Calculator: Estimate Your Monthly Payments

VA mortgages are available to active and veteran service members and their families with benefits ranging from lower interest rates to flexible guidelines. These home loans are government-guaranteed mortgage opportunities that have successfully helped millions of veterans purchase their dream homes.

A VA loan mortgage calculator is a tool for estimating your monthly payments. Here is how you can use one to calculate a customized rate.

Why You Should Use a VA Loan Calculator

As the name suggests, a VA mortgage loan calculator is a mortgage calculator that estimates what your monthly installments for a VA loan would cost.

Generally, they require information like interest rate, taxes, loan limits, VA funding fees, insurance, and downpayment (if any). Besides helping you manage your assets financially, a VA mortgage calculator also depicts how a VA loan would affect your expenses and all the benefits for which you qualify.

How to Use a VA Loan Calculator

Here are the steps to using a basic VA mortgage loan calculator.

• Enter the expected cost of the house and the amount you are willing to make as a downpayment. You can also choose not to make a downpayment. However, putting money down upfront would reduce your monthly payments.
• Enter the interest rates.
• Select the loan term. You can either choose 15 years or 30 years. Selecting a longer term would mean lower monthly payments but higher interest rates.
• Select whether or not it is your first time borrowing a VA loan.
• Look for the result. The “total monthly cost” combines monthly installments, insurance, taxes, interest and VA funding fees.
• You can also select the “breakdown of the cost” to get a detailed analysis.

Basics of the Calculator Inputs

Several factors could affect the monthly payments as shown on a VA calculator.

Here are a few basics to consider while calculating your monthly payments.

• Although it is not mandatory, making a downpayment reduces what you owe monthly.
• Monthly payments differ for different loan types. Choosing to refinance an existing loan into a VA loan can cost more than borrowing a VA purchase loan.
• Selecting an extended loan term (30 years) will decrease your monthly payments but raise your interest rates.
• Depending on the benefits available to other service types, a veteran’s loan may differ from a reservist’s loan.
• VA loan interest rates depend on factors like your credit score, bank statement, credit history, and market conditions like current mortgage rates, inflation, demographics, and demand supply.
• Unlike a conventional loan, you are not required to pay either the downpayment or Private Mortgage Insurance (PMI).

Understanding VA Mortgages: The Basics

VA mortgages were initiated in 1944 by the US Department of Veterans Affairs to help veterans purchase or refinance their homes.

What’s a Mortgage?

A mortgage is a loan secured against immovable property, such as a house or an investment property. In simpler terms, it is a loan where the loan provider keeps the asset as collateral until the loan is paid.

While a primary mortgage is available for an investment property or home, a VA home loan is financed only for residential purposes.

VA mortgages come with some noteworthy benefits.

• No down payment requirements
• No PMI requirements
• No prepayment penalty
• Lower interest rates
• Lower closing fees
• Flexible guidelines
• Easy VA loan eligibility criteria
• Assumability

What’s a Down Payment?

A downpayment is an amount you pay upfront while financing against an asset. VA home loans are mortgage opportunities that do not require you to pay anything upfront, even if your credit score is a little shaky.

The Role of VA Funding Fee

A VA funding fee is a one-time payment paid to Veteran Affairs to support the VA home loan program.

Candidates who make a downpayment of less than 5% are expected to pay 2.3% of the total loan amount if they are borrowing a VA loan for the first time. For every subsequent use, the funding fee is 3.6% of the total loan amount.

VA Loan Terms Explained

Generally, VA loan terms range between 15 years, 20 years, and 30 years. Choosing a short loan term increases your monthly payments significantly. However, it also reduces the interest rate, which helps you save thousands over time.

What’s an Interest Rate? What Determines My Interest Rate?

Several determinants could affect your interest rate, including credit score, current mortgage rates, downpayment, credit history, and loan term.

How Does Credit Score Impact Your VA Home Loan?

According to the guidelines defined by the VA, having an outstanding credit score is not mandatory to qualify for a VA loan. However, it is a general rule that most lenders expect you to have a minimum score of 620.

Moreover, you could qualify for additional benefits with a fair credit score, like lower interest rates and more flexible guidelines. Having a good credit score can simplify the eligibility process and help you get a loan with lower monthly payments.

Does the VA Have Special Requirements for Credit Scores?

No. As stated above, it is not necessary to have an excellent score to qualify for VA loans. Instead, different lenders have different requirements for credit scores.

Besides having a minimum score of 620, you must also have enough residual income, an appropriate debt-to-income ratio, and a fair credit history to satisfy the lender’s requirements.

Here is how to improve your credit score.

• Pay your bills on time to have a good payment history.
• Do not max out your credit cards.
• Repay any existing debt.

The Best Time to Get a VA Home Loan

VA mortgages already come with several benefits, but is there an ideal time to borrow a VA loan?

Generally speaking, the best time to borrow a loan is when you know you can afford it. You might also want to spend some time on improving your credit score before applying so you can get the best quote.

Another major determinant is your service type. Veterans are in the clear, but if you are an active military member, you might get a PCS.

VA loans are only financed for residential properties, so it is essential to borrow for a property where you know you will be staying for a while.

Who Is Eligible for a VA Loan?

There are three steps to prove your eligibility for the loan. You must get your COE, satisfy the lender’s requirements, and meet all the MPRs.

Getting Your COE

COE or the Certificate of Eligibility is a vital document that proves your eligibility for the loan. You must obtain the document before starting the loan process.

You are eligible for the COE if at least ONE of the following conditions is met:

• You are a current/former military member who has either served a minimum of 181 consecutive days during peacetime or a minimum of 90 consecutive days during wartime.
• You are a member of the Reserves or the National Guard with at least six years of experience.
• You are a family member of a veteran who either went MIA, was a POW, died in the line of duty, or suffered a service-related condition.

While getting your COE is the starting point of getting a VA home loan, it is not the only step. You must also satisfy the lender’s requirements and ensure that the property meets all the MPRs.

Satisfying the Lender’s Requirements

Most lenders require you to have a minimum credit score of 620, a debt-to-income ratio of less than 40%, and enough residual income while applying for a loan.

Having a good credit score and credit history might be beneficial as well.

Meeting All the MPRs

MPRs or Minimum Property Requirements are certain conditions the VA requires your house to meet to qualify for a VA loan. It is simple to check whether the home is safe for living or not.

Here are all of the MPRs your property must meet to qualify for the loan.

• The house must be a single dwelling that is legally considered to be real estate and is readily marketable.
• The home must have enough space for living, sleeping, cooking, and bathing.
• The home must be accessible to a private or public road.
• The property must be free from termite infestation.
• The home must have a proper drainage system and must not be subjected to avalanches or mudslides.
• The location must not be in a geologically risky site like near a volcano.
• The house must not be in particular flood hazard areas.
• The house must only be for residential use. You cannot purchase a VA loan for an investment property or a vacation home.

How to Qualify for a VA Home Loan

As stated above, to qualify for a VA loan, you must get your Certificate of Eligibility (COE), meet the lender’s requirements, and ensure that the house meets all the MPRs.

Here is what you can do to qualify for a VA loan.

• Choose a home that meets all of the MPRs.
• Improve your credit score before applying.
• Get your COE to validate your eligibility.

Steps to Getting a VA Home Loan

Typically, there are five steps to getting a VA home loan.

1. Pre-Approval

Getting pre approved is the first step in getting a VA loan. Although not mandatory, it is often recommended.

Pre approval gives you a glimpse at how much you can afford. This will help you set expectations upfront and encourage you to look for a house within your budget.

You can get pre approved whenever you want. Some applicants prefer getting pre approved months before applying for a loan.

2. Getting the VA Certificate of Eligibility (COE)

After getting preapproved, you can move onto the VA loan process and apply for the VA loan Certificate of Eligibility.

You must meet any one of the conditions stated above to get the certificate.

3. House Hunting

With the pre approved amount determined, you can shop for a house that not only fits your budget but also meets the requirements of the VA (and your personal list of wants).

4. VA Appraisal

A VA loan appraisal is an assessment conducted by an appraiser to determine the property’s actual worth and ensure the property meets all of the MPRs.

The VA will either finance the amount appraised by the appraiser or the selling cost, whichever amounts to less.

If the appraised value is less than the selling cost of the house, there are a few things you can do.

• Ask the VA for reconsideration.
• Ask the seller for a bargain.
• Make up the difference by making a downpayment.
• Walk away from the purchase and search for another house.

Besides getting the appraised amount, VA loan appraisal also ensures the property meets all of the MPRs. This can send your VA loan application in two different directions.

Either the house meets all the MPRs and gets approved by the appraiser, or the appraiser orders some repairs to be done before the closing.

If the MPRs are not being met, the house will likely be rejected, forcing you to return to house hunting.

5. Loan Closing

Once you are done with the VA loan appraisal and the VA agrees to provide you with the loan, you can finally move into your new home after paying the closing fees and signing all of the necessary documents.

What Does a VA Loan Cost?

There are two significant costs associated with a VA home loan: VA funding fees and closing fees.

VA Funding Fees

A VA funding fee is a one-time payment made to the Department of Veterans Affairs to support the VA loan program. It can depend upon several factors, including the number of times you have borrowed a VA loan.

However, you will be exempted from funding fees if any ONE of the following is true:

• You receive VA compensation for a service-related disability.
• You can receive VA compensation for your service-connected disability but are receiving retirement or active duty pay.
• Your loved one died from a service-connected disability and you are receiving Dependency and Indemnity Compensation (DIC).
• You are a service member with a proposed rating and can receive compensation because of a pre-discharge claim.
• You are a service member with a purple heart.

This fee can either be paid upfront or can be divided into monthly installments.

How Much Will I Have to Pay?

The fee amount depends on several factors.

• Is it your first time getting a VA loan?
• What is the loan type?
• Is there any down payment?
• What is the total amount of the loan?

Here is what your finding fees would look like based on your down payment amount.

Other Mortgage Costs

VA loan closing costs include a total of the following expenses:

• Commission of real estate agents
• Brokerage fees
• Buyer broker fees
• Termite report fees
• Loan origination fees
• VA funding fees
• Recording fees
• Taxes
• Appraisal fees
• Credit report fees
• Hazard insurance
• Title insurance

VA Mortgage Limits

The VA mortgage limit is the maximum amount the Department of Veterans Affairs can provide without any down payment. The Federal Housing Finance Agency sets these limits.

However, the limits do not put a cap on how much you can borrow. You can borrow as much amount you qualify for, given you make up the difference with a downpayment.

When Do VA Loan Limits Apply?

An applicant with partial or no entitlement is subject to VA loan limits.

What Is Entitlement?

The VA offers entitlement to eligible veterans, service members, and survivors. If the borrower fails to repay the loan on time, the department will pay the lender up to a certain percentage of the loan amount.

This specific amount is called VA loan entitlement. It equals the lesser of 25% of the loan amount or $36,000.

This means that the VA will either pay 25% of the loan amount or $36,000 to the lenders if the borrower defaults in any way.

You might have full entitlement if you have never used VA loan benefits before or have repaid your previous loan in full.

According to the amendments made in 2020, VA loan limits are no longer applicable to a person with full entitlement. Consequently, there is no cap on how much a person with full entitlement can borrow, even without making a downpayment.

You can check your remaining entitlement on a VA mortgage calculator or VA COE.

Changes to VA Loan Limits in 2020

According to the Blue Water Navy Veteran Act, as of January 1, 2020, all applicants with full entitlement will not be restricted to any VA loan limits.

Veterans with full entitlement will be able to borrow as much as they need without making a downpayment.

What if Your Dream House Is More Than the VA Limit?

If your home costs more than the defined VA limits, you have three options.

• Ask the seller to reconsider the price.
• Make up the difference by making a downpayment.
• Walk away from the purchase and search for another home.

Comparing VA Mortgage Rates

One of the remarkable benefits of VA loans is that they are available at highly competitive rates. While the VA-approved private lenders set these rates, the VA department makes sure they are available at lower interest rates.

Fixed and Adjustable Rate Mortgages

A fixed-rate mortgage is a home loan with a rate of interest that remains constant throughout the life of the loan. This makes budgeting relatively easy for borrowers.

Adjustable-rate mortgages (ARMs) are home loans with varying interest rates. The rate can go up or down, depending on the conditions. Initially, the interest rate remains constant; however, after the initial term, the loan resets, and so does the loan interest.

Which Loan Type Is Right for You?

To answer the above question, you must consider the following questions:

• Can I afford an ARM if the interest rate increases?
• What amount can I afford to pay monthly toward my mortgage?
• How long will I be living on the property?
• What are the recent trends for interest rates?

ARM might be a good option if you can afford the monthly payments, even if they increase. Moreover, it can be a wise choice if a decrease in interest rates is anticipated.

ARM is better than a fixed-rate mortgage in the following scenarios:

• You are not planning to stay for a long time on the property.
• An increase in your income is expected.
• You are thinking of paying off the loan before the loan terms reset.

Compared to the rest of the market, VA mortgage rates are generally lower than an FHA or conventional loan. Since the VA guarantees a part of the loan, lenders are able to provide it at a lower interest rate.

Managing Your Mortgage Payment

Your monthly payment is affected by the following factors:

• Home Price: A more expensive house results in larger monthly payments, especially if you are borrowing without making a down payment.
• Downpayment: If you decide to pay something upfront, your monthly payments can decrease at a special rate.
• Interest Rate: Generally, VA home loans are provided at highly competitive interest rates, which make for lower payments every month.
• Funding Fees: You can pay the funding fees either together during the loan closing or get it rolled up into monthly installments, which will increase your monthly payments.

What Does My Mortgage Payment Include?

Your mortgage payment includes the principal, interest, funding fees (if any), taxes, and insurance premiums.

For instance, if you are borrowing a loan amount of $153,450 at an interest rate of 3.125% (APR) and choose not to make a downpayment, your estimated monthly payment will be $852. This total is composed of $643 in principal and interest, $150 in taxes, $44 in insurance, and $15 in VA funding fees, given you have a good credit score and the loan term is 30 years.

Are Taxes Part of My Monthly Mortgage Payment?

Yes, your monthly payment will include taxes.

What Is a Homeowners Insurance Premium?

The homeowner’s insurance premium is the amount you pay annually to keep your policy alive. In the case of a mortgage, you would have to pay the premium as part of your monthly installments.

The premium depends upon your state, but the average annual expense for homeowner’s insurance is $1,585..

How to Lower Your VA Mortgage Payments

Choose a payment amount that you are comfortable with. While VA home loans come with affordable monthly payments, there are ways to reduce them further.

• Before selecting the quote, compare the rate with different loan terms, ranging from 10-year to 30-year. You might be able to get lower monthly payments with a 30-year mortgage. A longer loan term will decrease the price.
• Another way to reduce your monthly payments is by cutting off the interest rate. You can decrease the interest rate by comparing quotes provided by different lenders, improving your credit score, and applying for additional benefits.
• The last way to reduce your monthly payment is by making a downpayment to reduce your monthly expenses and help you save thousands.

Why Choose a VA Mortgage

There are always advantages and disadvantages to every decision. You can count on that when deciding if you should choose a VA mortgage as well.

Pros of Choosing a VA Mortgage

• These loans do not require you to pay any downpayment.
• They do not require you to pay PMI.
• There are no prepayment penalties.
• They have lower interest rates.
• They are available to you even with a shaky credit score.
• The VA offers refinance options.
• These loans are assumable.

Cons of Choosing a VA Mortgage

• They come with a funding fee, which is paid to support the program.
• The funding fee increases after every subsequent use of VA loan benefits. You will pay more in funding fees the second time you borrow a loan.
• The loans could exceed market value.
• The loans are provided only by VA-approved private lenders.
• You cannot purchase a vacation home or an investment property with these loans.

Best Tips When Buying Your Home With a VA Mortgage

Here are a few tips you should keep in mind while borrowing a VA mortgage.

Work With Your Agent

You should be in close contact with your real estate agent and VA loan lender when putting together a sales agreement. They will provide you the necessary instructions for signing and submitting to the seller.

VA Loan Appraisal and Home Inspection

A VA loan appraisal comes with a two-fold purpose. The first is to evaluate the actual value of the property, and the second is to ensure the house meets all the MPRs and is safe for living.

However, you must also note that an appraisal is not a home inspection. In short, the VA would not be responsible for anything. So, make sure you get the home inspection done before closing on the loan.

Review Pre-Closing Paperwork

Closing can be stressful, so make sure that you are prepared. Review any closing documents in advance so that you are ready to sign them when the time comes.