If you’re a veteran thinking of taking advantage of VA loan benefits, you’re not alone. There are many great reasons why over a half-million veterans, active military, Reserve members, National Guard and eligible spouses used this federal program in 2018.1 These government-insured loans remove many of the typical up-front and ongoing costs of mortgage loans. In addition to military mortgage benefits such as a zero-down payment option, low credit score and flexible income requirements, they don’t require private mortgage insurance (PMI).
Although VA mortgage benefits include reduced fees as compared to traditional mortgages, you will be charged a one-time funding fee for most VA purchase and refinance loans. Learn the ins and outs of this funding fee, including how to calculate out how much you’ll owe and if you might qualify for an exception.
Why is there a VA loan funding fee?
This funding fee exists as a way to cover the costs of VA guaranteed loans that default. “The fee also helps relieve U.S. taxpayers the full burden of backing the loans,” explains Military.com.2
How much is my funding fee?
The funding fee is a percentage of the loan amount. Rates vary based on the type of loan and your military status, such as if you are a veteran of the regular military or the Selected Reserve. If you are a first-time or subsequent VA loan user, and whether you make a down payment also factor into the amount you have to pay.3
Based on the 2019 VA Funding Fee Table, here are three sample scenarios:
- A regular military veteran with a 10% down payment would pay 1.25% for first-time loan use
- A Reserves/National Guard veteran with a 5% down payment would pay 1.75% for first-time loan use
- A regular military with no down payment would pay 3.3% for subsequent loan use
Due to a new law effective January 2020, VA funding fees will increase.
How does my funding fee get paid?
During your loan’s closing, one of the VA mortgage benefits is that you have three options for paying your funding fee. You can choose to finance the fee and roll it into your loan, pay cash, or negotiate with the seller to pay. Either way, your lender collects this fee and submits it directly to the Department of Veterans Affairs on your behalf.4
Can the fee be waived?
There are certain circumstances where you don’t have to pay the fee. The VA lists the following situations as circumstances where the fee is waived:
- Veteran receiving VA compensation for a service-connected disability, OR
- Veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay, OR
- Surviving spouse of a Veteran who died in service or from a service-connected disability5
Are there other fees involved with a VA loan?
While the exact expenses aren’t the same for all home purchases, there are some typical settlement fees you can expect to pay, such as origination fees and title fees. Read more about common mortgage closing expenses and how to calculate closing costs.
Do you still have questions about funding fees, eligibility, or other military mortgage benefits? It helps to have someone on your side experienced in VA loans to navigate the process. Guild has specialized in helping active duty and retired military personnel achieve homeownership for over sixty years. Connect with an experienced loan officer and find out if a VA loan is right for you.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply.