What To Know About VA Loan Funding Fees

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What is the VA funding fee?

The VA funding fee is a one-time charge paid at closing that enables borrowers to take out a VA loan without needing to make a down payment.

The cost of the VA funding fee is a percentage of the loan amount, which varies by borrower based on:

• Whether you’re buying a home or refinancing
• Whether it’s the first time you’ve obtained a VA loan
• Whether you’re making a down payment (and, if so, how much)

Why does the VA funding fee exist?

The VA funding fee exists to help protect the valuable benefits of the VA loan program without putting any additional costs on taxpayers. Since the government guarantees these loans, the funding fee acts as a protection for lenders in case a borrower stops repaying the loan. Without it, taxpayers would ultimately be on the hook for any defaults.

How does the VA funding fee differ from mortgage insurance?

How much are VA loan fees?

Here’s how much you’ll pay for the VA funding fee, whether you’re buying a home as active-duty military, a veteran or a member of the Reserve or National Guard. The same fee structure applies if you’re taking out a VA construction loan.

There’s at least one exception to the after-first use fee: If you used your previous entitlement for a manufactured home, you might only have to pay the VA funding fee at the first use rate. There are a few other exceptions as well with their own funding fee amounts, including:

VA funding fee for refinancing

You can also use the VA loan program to refinance your mortgage. The funding fees are:

 VA funding fee example

So what might the VA funding fee cost you? Let’s say you took out a mortgage for $300,000 and made no down payment at all. Since it’s your first time using a VA loan, the funding fee, based on a 2.15 percent charge, would cost you $6,450. If it was your second time using the VA loan benefit, the funding fee would increase to 3.3 percent or $9,900.

VA funding fee exemptions

While most VA loan borrowers need to pay the funding fee, there are a few exceptions. You won’t have to pay this fee if you’re:

• Disabled and receiving VA compensation for a disability connected to your service
• Receiving military retirement or active-duty pay in lieu of compensation for a service-connected disability
• On active duty and you’ve been awarded the Purple Heart
• Eligible to receive compensation as the result of a pre-discharge
• A surviving military spouse whose partner died from a service-related disability, or died in service and you’re receiving Dependency and Indemnity Compensation

How to pay the VA loan funding fee

You can pay the VA funding fee in one of two ways:

1. Upfront in cash with the rest of your closing costs
2. By rolling the fee into your mortgage, paying it over time with interest

If you can afford to pay the fee at closing, you’ll save money on interest.

VA funding fee refunds

If you already paid a VA funding fee in the past, you might be able to recoup that if you wind up receiving compensation for a disability related to your service. This is a unique situation, so contact a VA loan expert to review your case. You can talk to a VA loan officer by calling 877-827-3702, Monday through Friday from 8:00 a.m. to 6:00 p.m. Eastern Time.

FAQ

• Can you negotiate the VA funding fee with the seller?
  

  You can ask the seller to cover some or all of the VA funding fee as a concession. However, the seller can’t pay more than 4 percent of the total home loan in concessions, and they’re not required to pay your funding fee.

• What are other closing costs for VA loans besides the VA funding fee?
  

  As with any mortgage, your VA loan can come with closing costs like a lender origination fee, recording fees and title insurance.

• Is there a VA funding fee after the first-time use?
  

  Yes. Unless you qualify for an exemption, you’ll pay a VA funding fee, regardless of how many times you have used it.