3 min read VA Mortgage

What is the VA funding fee?

What is the VA funding fee?

Short Answer:

The VA funding fee is a one-time payment that most veterans, service members, and survivors need to make when they get a VA home loan. This fee helps keep the VA loan program running and makes it possible for the VA to offer loans without requiring a down payment or monthly mortgage insurance. The amount, if any, you pay depends on factors like whether it's your first time using a VA loan, if you have a dsiability rating, and how much of a down payment you make, if any.

Longer Answer:

Recently, I was helping a Veteran get prepared to buy a home with their VA homebuying benefits. During our conversation, the Veteran had questions revovling around "VA funding fee." In particular, what is this fee? Why do I need to pay it? Any way to reduce the fee?

Let's dive into these questions.

What is the VA Funding Fee?

The VA funding fee is a one-time payment that most borrowers must make when they take out a VA home loan. This fee is mandated by law and is designed to help offset the costs of the VA loan program, which offers significant benefits like no down payment and no monthly mortgage insurance. By collecting this fee, the VA can continue to provide these favorable loan terms to veterans and service members.

Why is the VA Funding Fee Required?

The VA funding fee helps to ensure the sustainability of the VA loan program. Since VA loans do not require a down payment or monthly mortgage insurance, the funding fee helps cover the program's costs and reduce the financial burden on U.S. Taxpayers, in case of default of the mortgage. Essentially, the fee allows the VA to offer these advantageous loan terms while maintaining the program's financial health.

How Much is the VA Funding Fee?

The amount of the VA funding fee varies based on several factors:

  • Type of Loan: Whether you're purchasing a home, refinancing, or taking out another type of VA loan.
  • Military Service Category: Your status as a veteran, active-duty service member, or member of the National Guard or Reserves.
  • First-Time or Subsequent Use: Whether this is your first time using a VA loan or if you've used the benefit before.
  • Down Payment Amount: The size of your down payment, if any.

For example:

  • First-Time Use with No Down Payment: The funding fee is typically 2.3% of the loan amount.
  • Subsequent Use with No Down Payment: The fee increases to 3.6%.
  • With a Down Payment of 5% or More: The fee decreases, reflecting the reduced risk to the lender.

Can the VA Funding Fee Be Waived?

In certain situations, the VA funding fee can be waived. You may be exempt from paying the fee if:

  • You receive compensation for a service-connected disability.
  • You are a Purple Heart recipient.
  • You are a surviving spouse of a veteran who died in service or from a service-connected disability.

How Can You Pay the VA Funding Fee?

There are a few ways to handle the VA funding fee:

  • Upfront Payment: You can pay the fee in full at the time of closing.
  • Financing the Fee: You can roll the fee into your loan amount, which will slightly increase your monthly mortgage payments.
  • Combination: You can choose to pay part of the fee upfront and finance the rest.

Conclusion

The VA funding fee is a crucial component of the VA home loan program, ensuring its sustainability and availability for future borrowers. While it may seem like an additional cost, the benefits of a VA loan—such as no down payment and no monthly mortgage insurance—often outweigh the fee. Understanding the VA funding fee and how it works can help you make the best decisions for your home financing needs.

If you have more questions about the VA funding fee or need assistance with your VA loan, don't hesitate to reach out to me at teamjd@mainstreethl.com

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These blogs are for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact me.

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