VA Funding Fee: Understanding the Costs
This article explores the details of the VA Funding Fee, an important factor in VA loan costs. Learn more about the VA Funding Fee and what it means for potential VA loan recipients here.
What is a VA Funding Fee?
A VA Funding Fee is a fee charged to a Veteran, who is seeking a VA loan for a home purchase or to refinance an existing loan. This fee helps to maintain the VA loan program and helps keep mortgage rates down for Veterans. The Funding Fee is a percentage of the total loan amount which is paid at closing or may be added to the loan amount and spread out over the life of the loan repayment.
How Much is a VA Funding Fee?
The VA Funding Fee amount varies based on several factors, including the Veteran's status as regular military, National Guard, or Reserves, type of loan, and down payment amount. For regular military, the fee is 2.15% for first-time users and 3.3% for subsequent use. For National Guard and Reserve personnel, it's 2.4% for first-time users and 3.3% for repeat borrowers. For no down payment loans, the fee is 2.3% for first-time users and 3.6%. Finally, for a down payment of 5% or more, the fee is 1.65% on first-time loans and 1.5% on subsequent loans.
Who Pays the VA Funding Fee?
Generally, the veteran is responsible for paying the VA Funding Fee either out-of-pocket or by rolling it into their loan amount. Other than disabled veterans, who are exempt from the fee, and surviving spouses of service members who died in service, all other Veterans and service members are responsible for the fee. Veterans who receive service-connected disability compensation may also be exempt from paying the VA Funding Fee, depending on individual financial circumstances.
Can I Roll the VA Funding Fee into My Loan?
Yes, service members and veterans can roll the VA Funding Fee into their loan. This means they don't have to pay it upfront when they close, but can add the amount to their loan balance. Although this can help manage cash flow, it can also increase the monthly payment and overall interest paid. Depending on the loan amount and interest rate, rolling the fee into the loan may cause the overall loan amount to increase significantly.
Are There Ways to Avoid Paying the Fee?
In certain cases, VA loans come exempt from paying the VA Funding Fee. These include disabled veterans, surviving spouses of deceased service members killed in action, and service members with Purple Heart recognition. Other ways to get around the fee include making a down payment of at least 5%, using VA-backed home improvement loans, and getting a refund from a prior VA loan.
Conclusion
The VA Funding Fee allows veterans to get access to the mortgages they need to purchase or refinance a home, while helping to increase access to credit and maintain lower mortgage rates for veterans. Understanding the applicable rate and payment options can help veterans make sure they are making the right decision when it comes to a VA loan. With the right information, veterans can then move forward with a loan that works best for them and their financial needs.