The US Federal Government offers many benefits to people who serve in the military. And one of these benefits is the Veterans Affairs Home Loan Guarantee Program. As the name implies, this loan helps veterans fulfill their dreams of home ownership at the best and most reasonable rates. The VA loan can be used to purchase a new home and even refinance an existing one.
Are you interested in a VA home loan, but don’t know about the terms and requirements? Well, you are not alone. Many people have questions and concerns regarding the eligibility and service requirements, but the most common of all is ‘What is the VA funding fee?’ So, today we are going to discuss the importance of the VA funding fee and the amount of the fee.
What is the VA funding fee?
Veterans Affairs Home Loans require an upfront one-time payment, known as the “VA Funding Fee” sometimes also referred to as the “Upfront Funding Fee”. This fee is a percentage based on the overall amount of your loan that is intended to enable veterans to contribute towards the cost of the benefits program to reduce the amount paid to taxpayers.
Borrowers can pay part or the entire fee in cash and can even finance this fee into their own loan amount to reduce out-of-pocket expenses. To understand more, let’s take a look at the VA funding fee for first time purchases, second time purchases, cash-out refinancing loans, streamline refinance, and other types of loans.
Funding Fee for First-Time Users
The funding fee for first-time users who do not make a down payment is 2.15%. National Guards and reservists have to pay a fee of 2.40%. For a down payment of 5% to 9.99%, the VA funding fee for veterans or active duty members is 1.50% and for National Guards and Reservists 1.75%. For a down payment of 10% or more, veterans and active-duty service members have to pay a fee of 1.25% and National Guard and reservists have to pay a 1.50% fee.
Funding Fee for Second-Time Users
The VA funding fee for second-time users who do not make a down payment is 3.30%. Now, why is the fee higher for second time users? Well, the idea of a higher fee for second time or subsequent users is based on the fact that prior users have enough time to save money towards the down payment and have had enough time to accumulate equity, also that these veterans or active-duty members have already used the chance to get a home loan.
So, what is the fee for a down payment of 5% or more? Well, generally since you are making a down payment, the funding fee is low. Veteran or active-duty service members have to pay a 1.50% fee and reservists and National Guards have to pay a fee of 1.75%. For a down payment of 10% or more, veterans have to pay a fee of 1.25% and National Guard members 1.50%.
Cash-Out Refinancing Loans
For veterans or active-service members, first-time cash-out refinancing loans require a 2.15% fee and for reservists or National Guards a fee of 2.40% is applied. Second-time cash-out refinancing loans have a fee of 3.30% for veterans, active members, reservists and National Guard members.
Streamline Refinance Loans
For first-time streamline refinance loans, the funding fee for all US military members is 0.50%. For second-time streamline refinance loans, the funding fee for veterans is 1.50% and for National Guard Members 1.75%.
Other Types of Loans
For Assumption Loans, military members have to pay a fee of 0.50%. And for manufactured homes, military members have to pay a fee of 1.00%.
Who Is Exempted From Paying This Fee?
There are some cases in which the Department of Veterans Affairs does not charge a funding fee. In order to be exempted from this fee, veterans must match a list of VA-approved situations. According to the VA laws and lender’s handbook, military members are exempted from paying this fee if:
- They receive a ‘VA Compensation’ for disabilities caused while on service or active-duty.
- They are eligible to receive ‘VA Disability’, but receive retirement benefits instead.
- They are eligible to receive VA Disability, but have been recalled for active-duty.
- Surviving Spouses of Veterans who died during active-duty or through service-connected disabilities.
However, please note the Department of Veterans Affairs has the final say on who can be exempted from this fee and who not. In addition, even you do meet the criteria above, the exemption status does not automatically apply on your VA home loan. Now, why is that? Well, in order to receive the exemption status, you must apply for a ‘Funding Fee Exemption’.
VA Funding Fee Exemption Process
You can take help from your VA-approved lender to understand the process, but here are a few documents you must have to prove you are eligible for a VA funding fee exemption:
- A Filled out and signed VA Form 26-8937
- Certificate of Eligibility (COE)
- A Copy of the Veterans disability rating or service retirement.
So, now that you are familiar with the VA funding fee amounts and the terms and conditions in order to be exempted from paying the funding fees, opting for a VA loan to purchase a home won’t be a problem. For more information and estimated payments, feel free to use our VA Loan Calculator Tool to give you a better understanding of what purchasing you home with a VA loan will actually cost.