Everything You Need to Know About the VA Funding Fee

VA Funding FeeThe VA Funding Fee is a source of consternation for many VA borrowers, but this can usually be solved by clarifying their expectations about the VA Funding Fee. Many borrowers go into the VA loan program and don’t find out about the VA Funding Fee until the first time their loan officer estimates closing costs with them. That’s an unpleasant time to find out about it, so it’s best to learn about the Funding Fee long before you get to that point. We’ll cover everything you need to know about the Funding Fee in this article, including how much it will cost when it is due, and who’s exempt from paying it. By the end of this article, you should know at least enough to know what questions to ask your loan officer.

 

How Much Is It?

The amount of the funding fee varies based on a number of factors. Whether the veteran is regular military or from Reserves/National Guard, whether the veteran is making a down payment and, if so, how much of one, and whether this is the first time the veteran has used his or her entitlement or a subsequent use. The VA provides a pretty useful chart, which we’ve included below. However, the Funding Fee also varies based on what type of loan you are getting. Therefore, we will also include the other two tables that the VA provides to show all of the possibilities. The Funding Fee amount is always expressed as a percentage of the loan amount.

Type of Veteran Down Payment Percentage for First time Use Percentage for Subsequent Use
Regular Military None

5% or more

10% or more

2.15%

1.50%

1.25%

3.3%

1.50%

1.25%

Reserves/National Guard None

5% or more

10% or more

2.4%

1.75%

1.5%

3.3%

1.75%

1.5%

 

Cash-Out Refinancing Loans:

 

Type of Veteran Percentage for First Time Use Percentage for Subsequent Use
Regular Military 2.15% 3.3%
Reserves/National Guard 2.4% 3.3%

For other loan situations:

Type of Loan Percentage for Either Type of Veteran Whether First Time or Subsequent Use
IRRRLs .50%
Manufactured Home Loans (NOT permanently affixed) 1.00%
Loan Assumptions .50%

 

Alright, now that that’s covered, let’s move on to when the Funding Fee is due!

 

When Is It Due?

The Funding Fee is due at loan closing with no exceptions. However, you are usually able to finance the Funding Fee into the loan amount if you need to. There are a couple of things to keep in mind with this, however. For example, if you have enough cash available to make a 10% down payment, but not enough to make a 10% down payment and pay cash for the Funding Fee, you may want to finance the VA Funding Fee and add another few hundred dollars to your down payment so you can retain the benefits of making that high of a down payment. Another thing to consider is that adding the Funding Fee (and other closing costs on an IRRRL) can increase the loan amount above how much the house is worth, which can cause major issues if you need to sell your house shortly (within a couple years) after buying it, especially if you don’t make a down payment. Also, when you finance things into the loan instead of paying them upfront, you end up paying more in the long run because the loan’s interest rate is applied to that extra amount.

 

Where is the Funding FeeWho is Exempt From the Funding Fee?

The VA’s website has a nice summary explanation of who is exempt from paying the Funding Fee:

  • 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 disability

 

In other words, the difference between exempt and non-exempt is disability status. If you are not receiving any compensation for a service-connected disability, then you will be expected to pay the VA Funding Fee. Your Certificate of Eligibility will state whether you are exempt. If it says you are not and you think you should be, you will need to work with the VA to apply for disability compensation.

 

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