In order to receive a VA loan you will be charged a fee that is called “VA Funding Fee”, which is is required by law. The VA funding fee vary’s depending on your veteran status and if you have previously used the your VA eligibility or not.
Instead of paying monthly mortgage insurance as in a conventional loan where you put down less than 20% of the loan amount, a VA loan charges a fee (basically funds that go into an insurance fund / pool) that offsets the need for mortgage insurance.
The VA Funding Fee is a one-time fee charged on a VA Loan in order to limit the overall cost of the VA Loan, considering the VA Loan requires no down payment and has no monthly mortgage insurance.
VA Funding Fees – VA loans typically cost you no cash “out of pocket”. The VA Funding Fee is non-refundable, it does not have to be paid prior to the closing of the loan and can be financed into the loan, which is what most VA borrowers opt for.
The VA Funding Fee is also an allowable seller concession (meaning the seller can contribute funds to pay for this fee), but it must be factored into the 4% maximum that is allowed for seller concessions.
Generally, “Funding Fees” for VA home loans fees range from 0 to 3.3% of the loan amount. So on a $200,000 VA home loan the funding fee maximum of would be about $6600.
Purchase and Construction Loans
Note: The enactment of Public Law 112-56, signed November 21, 2011, established rates at the below levels through September 30, 2016. The Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012, signed August 6, 2012, further extended the rates through September 30, 2017.
| Type of Veteran | Down Payment | First Time Use | Subsequent Use for loans from 1/1/04 to 9/30/2017 |
|---|---|---|---|
| Regular Military | None 5%-9.99% 10% or more |
2.15% 1.50% 1.25% |
3.3% 1.50% 1.25% |
| Reserves/National Guard | None 5%-9.99% 10% or more |
2.4% 1.75% 1.5% |
3.3% 1.75% 1.5% |
Cash-out Refinancing Loans
| Type of Veterans | Percentage for First Time Use | Percentage for Subsequent Use |
|---|---|---|
| Regular Military | 2.15% | 3.3% |
| Reserves/National Guard | 2.4% | 3.3% |
- The higher subsequent use fee does not apply to these types of loans if the Veteran’s only
prior use of entitlement was for a manufactured home loan.
Other types of loans
| Type of Loan | Percentage for Either Type of Veteran Whether First Time or Subsequent Use |
|---|---|
| Interest Rate Reduction Refinancing Loans |
.50% |
| Manufactured Home Loans | 1.00% |
| Loan Assumptions | .50% |
Funding can be fully financed – The good news is the VA funding fee can be rolled in with the total loan amount in the event you are limited on funds…so no out of pocket cash by you is required.
Basically this funding fee waives the mortgage insurance that normaly is paid monthly on conventional loans. The rational for the funding fee is that you, the VA borrower are contributing to the fee payment thus reducing the burden on taxpayers – however the fee costs you nothing out of pocket.
What are the Fees for a Streamline Refinance Loan?
There is a .5% funding fee for using the IRRL program to refinance your home. This fee can be fully financed which means it’s “rolled into the new loan amount”.
This fee helps defer the cost of private mortgage insurance that would have been required had you taken out a conventional loan. Keep in mind, VA charges no monthly mortgage insurance premium, instead letting Vets pay a funding fee of .5%
Who is Not Required to Pay VA Funding Fee
Disabled Vets May Waive Funding Fee – If you are deemed 10% disabled as a result of your military service, VA rules state you are not required to pay any funding fee.
While there is a funding fee for a VA home loan, some people are exempt from paying. If you are a veteran getting disability compensation for service-related medical issues, or are entitled to get compensation if you aren’t drawing retirement pay, you are exempt from the VA funding fee for your VA home loan. Also, surviving spouses of those who died in the service, or from service related disabilities are also exempt. It doesn’t matter in this case whether the spouse has any of their own entitlements. Remember that the VA has the last word on who is exempt, and some issues may be dealt with on a case-by-case basis. If you have any doubts, ask your local VA rep to review your service records (or your spouse’s records) and get a determination from the VA.
VA Funding Fee Example
How VA Funding Fee is Calculated – VA funding fee is based on a few variables like your military status and whether or not you put a down payment the loan. Guess what? The greater your down payment the less less VA funding fee you’ll be required to pay. In a nutshell… more down payment – less fee.
There is a cost advantage to buying with a down payment and you should attempt to put something down – if possible.
For example, say your looking to buy a $200,000 home. If you’re a regular veteran paying no down payment, you will be required to pay a 2.15% funding fee, about $4300. Since the funding fee is “rolled into your loan” you are financing $204,300. Your monthly payment would be $1,224 and overall interest paid, assuming a 30 year fixed rate at 6%, would be about $236,340.
Financing the same loan with 5% down payment would require only1.5% funding fee. So the amount you are financing is $192,850 ( 200,000-5% plus 1.5%). Your monthly payment is now about $1,156, and your overall interest payment is $223,310. You’ll save about $13,030 in total interest payment if you put down 5%, ($10,000) towards your loan.
Think of it this way: You save about $68 monthly or $816 annually by paying the 5% down. The decision to put a cash deposit down depends entirely on your financial situation and so consider all your expenses and if you can afford to put that “chunk of cash” down.
Reserve and National Guard Funding Fee If your in one of these branches the funding fee is slightly higher starting at 2.4% with no down payment. If you can scrap up a 5% deposit you will be charged a 1.75% funding fee. This fee, of course, can be fully financed.
