The VA Funding Fee Demystified and Explained Part 2

Deciphering the VA Lender’s Handbook Chapter 8 Part 6

How the VA Funding Fee worksIn the last article we covered how you and the lender work together to determine whether you are exempt from the funding fee, as well as what to do in the event that you could be exempt but aren’t able to have your exempt status confirmed until after the fact. If you’re looking for information on how the funding fee works and the process you’ll go through in relation to the funding fee, you’ll want to read that article. This article is going to be all about numbers; how much will the funding fee cost, what number is the percentage calculated off of, and how many days the lender has to remit payment of the funding fee to the VA.

 

For all VA loans except for IRRRLs (streamline refinances), a certain percentage calculated from the tables in Chapter 8 of the VA Lender’s Handbook is applied to the loan amount. Some good news for those who are planning to use loan proceeds to pay for the Funding Fee: the percentage is calculated off the loan amount before the cost of the funding fee is added to it (if you think about it for a bit, it becomes clear why). IRRRLs are different; to calculate the funding fee on an IRRRL, the lender completes the VA Form 26-8923. For most loans, however, the lender will be using the tables in Chapter 8, which I have included in this article. Quick note – for joint loans there are some special instructions for calculating the Funding Fee. We went over those in Chapter 7.

 

So, when the lender is calculating the Funding Fee, he or she will look a lot at your Certificate of Eligibility. The first thing they will look for is whether you are eligible for benefits because of service in the regular military or through the Reserve/Guard. For a Reservist/Guard, the COE will be buff-colored rather than green, and will have the following notation, “RESERVES/NATIONAL GUARD – INCREASED FUNDING FEE”. The second thing the lender needs to know is whether this is a first-time use of the veteran’s VA loan benefits or a subsequent use. The entitlement code on the COE tells the lender this. A “5” indicates a subsequent use. Next, the lender needs to apply what kind of loan is being taken out: new purchase, refinance, or streamline refinance. Last, the lender needs to take into account whether the veteran is making a down payment, and how much of one is being made. With that information, the lender can locate the correct percentage using the below tables.

 

For New purchase and Construction loans:

Type of Veteran Downpayment 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%

For 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%

Calculation VA Loan RatesAs you can see, making a down payment makes a big difference in the amount of funding fee you are charged, regardless of whether you served in the regular military or the Reserve/Guard. Considering that making a down payment also lowers your principal and saves you thousands of dollars in interest over the life of the loan, making a down payment is the best financial decision if you are able to afford it. Even if you don’t make a down payment, the Funding Fee is very low compared to the mortgage insurance premiums you would be paying through any other loan program for paying little or no down payment.

 

Lenders must get the Funding Fee payment to the VA within 15 calendar days of loan closing. If you are paying the funding fee out-of-pocket, you’ll be asked for a cashier’s check at the time of closing. If you are paying the funding fee out of loan proceeds, your lender will explain how it will work. In the event that a refund is due to the veteran (either the veteran was exempt or was overcharged due to a miscalculation), the lender will either send you a check (if you paid the Funding Fee upfront) or apply the refund to your loan balance (if you paid it out of loan proceeds).

 

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