The VA Funding Fee: What to Expect on a VA Loan
The VA funding fee is a type of closing cost unique to all VA mortgages. It can range anywhere from 0–3.3% of the total loan amount, depending on a variety of factors, and is paid directly to the VA.
Why Is There a Funding Fee?
In short, the funding fee helps support the VA loan program.
The longer answer is that the funding fee is how the VA can guarantee 25% of each loan. This guarantee is what allows the VA loan program to be so affordable, with no down payments and no monthly mortgage insurance. By paying it, you're helping keep the cost of a VA loan down for all veterans, yourself included.
In addition, money from the funding fee goes directly towards paying for defaulted VA loans. In essence, your funding fee is being used to help your fellow brothers and sisters in the military who fall on hard times.
Finally, if we put it another way, the funding fee makes sure that the VA loan program itself remains successful, allowing it to stick around for future generations.
Is Anyone Exempt from the Funding Fee?
Yes. The VA will waive your funding fee if you meet one of three conditions:
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You receive compensation from the VA for a service-connected disability
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You would receive compensation from the VA for a service-connected disability if you weren't already receiving active duty or retirement pay
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You are the surviving spouse of a veteran who died while in service or from a service-related disability
If you aren't sure if you qualify for VA disability payments, a VA doctor must examine you to determine your disability percentage. If you've already been examined, your Certificate of Eligibility (COE) will have your disability rating, if any. Your lender can quickly pull your COE to see if your funding fee is waived.
How Much Is the Funding Fee?
Like we said before, it can cost anywhere from 0–3.3% of your total loan amount. But you're probably wondering where you actually fall in that range.
Some of the factors that will determine the amount of your funding fee include:
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Military Service – If you enlisted or served as an officer in any branch of the military, your funding fee will be lower than if you were a member of the National Guard or Reserves.
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Down Payment – Those who choose to make a downpayment, even though it isn't required, qualify for a lower funding fee
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Prior VA Loans – The VA funding fee is lower the very first time you get a VA loan; with any subsequent use, the funding fee will be higher.
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Type of VA Loan – VA purchase loans, VA cash-out refinance loans, and all other VA loan types each have a different funding fee percentage.
To put it simply, most veterans getting a VA home loan for the first time can expect to pay 2.15% if they're not making a down payment. However, if your situation is slightly different, you can view the VA's funding fee tables to find out what your specific funding fee percentage will be. You will start by finding the table for your specific loan type, then go from there.
When Will I Pay the Funding Fee?
Normally the funding fee is paid at closing. However, because the VA loan program offers 100% financing, you do have the option to roll it into the loan amount. In this scenario, your lender will cover the funding fee for you, and you will pay them back, with interest, over the life of the loan.
One thing to consider about the funding fee is that, if you have enough money upfront to either pay the funding fee or make a 5 or 10% down payment, you might want to consider financing the funding fee and using your money for a down payment. The reason for this is that a higher down payment reduces the amount of your funding fee.
Also, if you are getting a VA interest rate reduction refinance loan (IRRRL), be aware that financing the funding fee could potentially push your total loan amount above the value of your home. If this happens and you decide to sell the home later, it can affect your financial situation because you owe more than the home is worth.
Still Have Questions?
As the feature home loan provider for PCSing.come, Low VA Rates can help you with everything you need to know about the VA funding fee, as well as all other aspects of VA loans.
They'll use their 10+ years of experience help you fulfill your dreams of affordable homeownership, just like they have for tens of thousands of other veterans and servicemembers. It's this dedication to the members of our military, along with their ability to find great rates, that makes Low VA Rates one of the leading lenders for VA loans.
