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VA Loans come with a myriad of gold-standard perks for eligible service members like no personal mortgage insurance (PMI), low/no downpayment, low interest rates, and limits on closing costs that make it an attractive choice for anyone that qualifies.
However, the unconventional perks of the VA Home Loan are accompanied by something called a VA Funding Fee.
What Is the VA Funding Fee?
New VA purchases and refinances have a one-time fee associated with them called a VA Funding Fee. This fee goes Department of Veteran Affairs and is used to help the Department of Veterans Affairs keep the program active.
The VA uses the funds to pay program costs that will continue to allow eligible service members to purchase and refinance houseswith the government backing that allows for lenient approvals and favorable terms.
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How Much Is the VA Funding Fee?
The VA Funding Fee is assessed as a percentage of the overall borrowed amount and varies based on the amount of down payment.
Borrowers that chose no down payment can also expect a higher VA Funding fee if this is not their first VA Loan.
These stipulations are true for all VA Home Loan types except the VA Streamline Refinance or VA IRRRL, which is 0.5% period.
VA Cash-Out Refinance Funding Fee
Eligible Service-members that plan to use a VA Cash-Out Refinance to bank some Benjamins from their existing home equity will pay the same fees as new mortgages without a down payment. First-time VA users will pay 2.3%, and those with an existing or former VA Loan will pay 3.6%.
VA Purchase Loan Funding Fee
One of the biggest benefits of a VA Loan is that borrowers are not required to make any sort of down payment, but the VA still wants to reward those eligible service members that can make a down payment on their loan.
For new purchases, the VA reduces the Funding Fee percentage as the down payment increases.
Borrowers putting down a down payment of 10% or more will pay the least VA Funding Fee at 1.4%. Those paying between 5-10% will pay 1.65%.
Borrowers choosing no down payment will pay either 2.3% for first-time borrowers or 3.6% for subsequent loan holders.
|Down Payment||First-Time VA Loan||Subsequent VA Loan|
|5 to 10%||1.65%||1.65%|
|10% or More||1.4%||1.4%|
VA IRRRL Funding Fee
VA IRRRLs are designed to get current VA Loan holders into new VA Loans with more agreeable terms and lower interest rates.
As such, there is not a down payment component, and the down payment point becomes moot. The VA IRRRL Funding Fee is the lowest and is merely 0.5% for everyone.
>> More: What Is a VA Home Appraisal?
How Is the VA Funding Fee Paid?
VA Funding Fees must be paid at closing, and they can be paid a couple of different ways. The most appealing of those ways is probably that the seller pays the VA Funding Fee as terms of the buying contract. If that option is not available, most buyers choose to finance the fee into the loan.
However, borrowers are also able to plunk down hard cash at closing to pay the fee. It is important to remember that if borrowers choose to finance the VA Funding Fee as part of their overall loan obligation, they will be paying interest on that amount too.
VA Loan Funding Fee Exemptions
Some borrowers are exempt from the VA Funding Fee entirely.
We probably shouldn’t go so far as to call them “lucky” because the eligibility requirements do require some level of disability, but not paying the VA Funding Fee does help cut the costs of a new mortgage. Purple Heart recipients and surviving spouses are never required to pay VA Funding Fees.
Veterans receiving compensation for service-connected disabilities, those who would receive disability compensation if not for military retirement pay, those eligible for compensation, and those who can but are not receiving compensation because they are on active duty also do not have to pay the VA Funding Fee.
Lenders will ascertain this information from the VA Verification of Benefits or Certificate of Eligibility that is required for a loan anyway.
Can a VA Loan Funding Fee Be Waived?
The VA Loan can be waived for personnel who are exempt from paying the loan. The VA Certificate of Eligibility or VA Verification of Benefits will detail who will and will not pay the fee.
The mortgage lender does not have any say in waiving the fee. Each lender is at the mercy of the VA for eligibility and for VA Funding Fee exemptions.
Purple Heart holders’ active duty or retired, surviving spouses, and those who are considered to have service-connected disabilities are eligible for a waiver.
Is there Anyway to be Refunded?
Refunds are available for a select group of service members. The VA processes take some time to navigate, and eligibility and compensation might not always be decided when a service member is ready to buy the home of their dreams or the home that’s good enough for government work.
Personnel who are later determined to have a service-connected disability before their closing date may be eligible for a refund.
>> More: Explore Government Home Loan Options
Do You Have to Pay the VA Funding Loan Fee Out of Pocket?
VA Loan borrowers do not need to worry about coming to the closing table with a wad of cash.
While borrowers can pay their VA Funding Fee directly out of pocket at closing, there are a few ways that this fee may be paid.
The most popular option is that the VA Funding Fee is amortized into the loan, making the VA Loan a truly $0 upfront mortgage.
Some buyers and their very skilled real estate agents might even be able to convince the sellers to pay the VA Funding Fee as at the negotiated terms of the sale.
What Other Closing Costs Come with a VA Loan?
The good news for VA Loan borrowers is that the VA stipulates which closing costs eligible personnel will pay.
Some of the closing costs to be expected include origination charges, appraisal fees, title charges, credit report fees, prorated taxes, loan discount points, recording fees, and inspection fees.
Bottom Line: VA Funding Fee
Even with the VA Funding Fee, the VA is doing eligible service-members a serious solid by providing a mortgage-free from many of the constraints of a conventional loan or refinancing opportunity.
Additionally, many service members who qualify for a VA Loan will also qualify for a VA Funding Fee waiver making the applicable VA Mortgage Program with a second look.