Are you planning to finance a new construction project for your home? Then you should know as an eligible veteran or even active-duty service members, and their families can avail of unique loan offers and valuable options from the VA construction loans.
Such loans are supported by the U.S. Department of Veterans Affairs, in short V.A., and provide for an opportunity to build homes from the ground up, moreover, these loans come with some favorable terms such as no down payment and competitive interest rates.
However, the general problem that occurs is a calculation of a complex VA construction’s total loan cost, and this is why you need a loan calculation tool. We’ll help you with calculating your VA construction loan costs using these tools so that you have a clear picture of your financial obligations before starting to build your home.
Understanding VA Construction Loans
Before jumping into the specifics of the estimation tools, let’s first understand what a VA construction loan is and how it is different from other types of loans. A VA construction is a short-term loan designed to specifically cover the cost of building a new home.
Once your house is complete, the loan converts into a permanent VA mortgage, that will allow you to pay off the loan over time.
Key Features of VA Construction Loans
- Zero Down Payment: The greatest advantage of VA construction loans is that most of the time you don’t need to make any down payment. It is a viable option for people who don’t have a lot of savings initially.
- Lower Interest Rates: VA loans offer lower interest rates than the conventional loans in the market. This will result in a significant saving over the total loan.
- No Private Mortgage Insurance (PMI): Conventional loans will require a PMI, while in the case of loans from VA, don’t require a PMI even if you make no down payment.
- Credit Requirements: The VA offers you more flexible credit requirements compared to other lenders, which is helpful for the veterans and service members to qualify.
- One-Time Close: Many VA construction loans offer a “one-time close” feature, that is you only go through the loan approval process once, this simplifies the overall process.
Why are loan estimation tools important?
There are a number of complexities involved in a construction loan, and thus predicting your total loan cost accurately can be a challenge. In such cases, loan estimation tools help you understand the various expenses associated with your VA construction loan,
including:
- Land Acquisition Costs
- Construction Costs
- Loan Fees
- Interest Rates
- Closing Costs
- Contingency Funds
Loan estimation tools help you break down these costs, and provide a clear picture of what you can expect to pay throughout the construction process.
How to Use Loan Estimation Tools for VA Construction Loans
1. Find Necessary Information
Before using a loan estimation tool, you’ll need to gather some key information:
- Loan Amount: find out the total amount you’ll need to borrow, this will include land acquisition, construction costs, and some possible other expenses.
- Interest Rate: Research current VA loan interest rates or you can also consult with a lender to get an accurate rate.
- Loan Term: Determine the duration of the loan you are comfortable with, which can be typically 15 to 30 years for a VA mortgage.
- VA Funding Fee: find the details of VA funding fee, which can range from 1.4% to 3.6% of the loan amount, depending on your specific circumstances.
- Closing Costs: Estimate closing costs, which vary based on the lender and location.
2. Opt for a Reliable Loan Estimation Tool
There are several loan estimation tools you can find online, ranging from simple calculators to more advanced software. Some popular options include:
● VA Loan Calculators
● Construction Loan Calculators
3. Input Your Data
Input the information you’ve gathered in the loan estimation tool. The more accuracy you put the better possibility to ensure the estimates are reliable. Here’s a breakdown of what you might input:
- Loan Amount
- Interest Rate
- Loan Term
- VA Funding Fee
- Closing Costs
- Construction Costs
4. Review the Results
Now, the loan estimation tool will generate a detailed breakdown of your costs, like Monthly Payments, Total Interest, Total Loan Cost, and Breakdown of Costs.
5. Adjust and Refine
If the provided results don’t align with your estimated budget plan, you can always adjust the data by filling up different inputs to see how different scenarios affect your budget plans.
6. Consult with a Lender
While these apps can provide you with fairly estimated data, consulting a lender will provide you with a more accurate and personalized loan estimate. A VA-approved lender can also help you navigate the VA loan process, ensuring you meet all eligibility requirements and understand the fine print.
We understand that calculating the loan costs can be a really exhausting task, but with the right tools and strategy, you can save your time and effort. For such tools first you need to get detailed data and consulting a lender can make the process easy and helpful.
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