What to Know About VA Loan Monthly Mortgage Payments

Marcus Marion, CMA™ 2 months ago 0 12

The mortgage payment is one of the most important aspects of a VA home loan. After all, it affects everything from your monthly budget to your overall quality of life.

This guide will teach you everything you need to know about the monthly mortgage payments associated with a VA loan, including the four primary components.

Overview of the VA Loan Program

A “VA loan” is simply a mortgage loan that’s backed by the federal government, through the Department of Veterans Affairs. The VA does not lend money directly to borrowers. They simply provide a guarantee to the mortgage lenders who offer loans through this program.

In short, if a homeowner with a VA loan stops making their monthly payments, the VA will compensate the lender for a portion of their losses.

This program is limited to U.S. military members, veterans, and certain qualifying spouses. It offers significant benefits, like the ability to buy a house with no down payment.

The Primary Components of a Mortgage Payment

In a typical home buying and homeownership scenario, the monthly payments for a VA loan will include four main components. Banks and mortgage lenders often use the acronym “PITI” to describe these components.

Here’s what those four letters stand for:

  • Principal: The principal is the initial amount of money borrowed from a lender to purchase a home. It represents the total VA loan amount that you agree to repay over time. Each mortgage payment includes a portion of the principal, which reduces the outstanding VA loan balance.
  • Interest: Interest is the cost of borrowing money from a lender, expressed as a percentage of the principal loan amount. It’s the compensation that lenders receive for providing funds to borrowers. On a VA loan, a portion of each mortgage payment goes toward paying the accrued interest.
  • Taxes: This refers to property taxes assessed by local governments on the value of the property. Homeowners are required to pay property taxes annually or semi-annually. Lenders and loan servicers often collect a portion of these taxes as part of the monthly mortgage payment, to ensure they are paid on time.
  • Insurance: In the context of VA loan payments, the second “I” in PITI stands for insurance. This is the homeowner’s insurance policy that protects the home and its contents against damage or loss. To protect their investment, VA loan lenders usually require homeowners to maintain adequate coverage throughout the life of the loan.*

*Note: With a conventional mortgage loan that’s not backed by the government, the “I” for insurance can also include private mortgage insurance. But with a VA-guaranteed home loan, mortgage insurance is not required. So in this case, the second “I” in the PITI acronym usually only consists of homeowners insurance.

Principal, Interest and Amortization

Amortization is another important concept to understand, as it relates to VA loan monthly payments.

“Amortization” refers to the process of gradually paying off a loan through regular payments over a predetermined period. With each mortgage payment, a portion goes towards reducing the loan balance or principal, while the remainder covers the accrued interest.

At the start of your VA loan repayment term, most of your payment will go towards interest. But over time, as you pay down the loan, more of your payment goes toward the principal balance.

You can see how this works by referring to your amortization schedule. This schedule shows how each monthly payment is allocated between principal and interest over the life of the loan.

How and Where to Submit Your Payments

With a VA loan, the homeowner typically sends the monthly payments to a loan servicer. This might be an entirely separate company from the mortgage lender that originated the loan.

In a typical VA loan scenario, the servicer receives the monthly mortgage payments and applies them to the principal, interest, taxes, and insurance (if held in escrow). They also serve as your primary point of contact for questions about your loan, payment history, payoff amounts, and other general inquiries.

How you actually submit your monthly VA loan payments will depend on the agreement you have with your mortgage lender. The most common methods of payment include:

  • Online Payments: Homeowners can often make mortgage payments conveniently through the lender’s website or a designated online payment portal. This method allows for secure and efficient payment processing.
  • Automatic Withdrawal: Many homeowners with VA loans opt for automatic withdrawal, where the mortgage payment is automatically deducted from their bank account on a specified date each month. In addition to being more convenient, this method ensures timely payments and reduces the risk of missing a payment.
  • Mail-in Payments: Homeowners with VA loans can also send payments by traditional mail, typically using a check or money order. Payments are mailed to the address provided by the loan servicer and must be received by the due date to avoid late fees.

Regardless of the payment method chosen, you want to make sure you submit your VA loan payments on time each month. Missing payments could result in penalties and possibly damage your credit score as well.

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