VA Funding Fee

Every veteran needs a home that they can afford, and in order to make homeownership more of a reality for so many veterans in the United States, the Department of Veterans Affairs (VA) created a program to enable lenders to finance veterans homes at much lower costs. But some funds have to flow into this program in order to make it operational. That’s where the VA funding fee comes in. The VA Funding Fee is a financed charge assessed by the VA in order to help fund the VA Loan Guarantee program. The funding fee varies according to the type of transaction and borrower, and it is calculated as a percentage of the base loan amount on all VA home loan transactions.


Benefits of Paying the VA Funding Fee

 

In layman's terms, the VA funding fee is a fee that the Department of Veteran's Affairs charges on each loan so that the VA can generate enough revenue to maintain the existence of the VA home loan program. When a veteran defaults on their home loan (can’t make payments), the VA will step in to cover these damages to the lender and they pull from the VA funding fee funds. Since lenders know that the VA will step in if the borrower cannot make payments, these lenders will gladly offer significant home loan benefits that are unavailable to other conventional borrowers.

Banks are willing to issue VA loans at 100% LTV with no money down and also offer lower interest rates because of the VA. In fact, VA loans often have the lowest rates around. Lenders will also often offer more flexible qualifications. For example, a borrower with a lower rate may still qualify for and receive a favorable interest rate with a VA loan while that same borrower might be turned away by conventional lenders. Other non-VA loans require money down, mortgage insurance (or PMI), and higher qualifications in order to reduce the risk. Many VA borrowers complain about the funding fee for VA loans and do not understand why it’s necessary. However, the VA funding fee is a small price to pay for the numerous benefits offered to veterans via the VA home loan program.


 

First time use, purchase of an eligible property
Down Payment Active Duty Reserves/NG
0% to 4.99% 2.2% 2.4%
5% to 9.99% 1.50% 1.75%
10% + 1.25% 1.5%
   

 

Second time use, purchase of an eligible property
Down Payment Active Duty Reserves/NG
0% to 4.99% 3.3% 3.3%
5% to 9.99% 1.50% 1.75%
10% + 1.25% 1.5%


As you can see by the current VA funding fee chart, not every veteran borrower is charged the same amount. The fee differs depending on how much the borrower paid in down payment, whether they are active duty or in the reserves, if this is their first time use, and if they have been disabled due to service. Now, disability is not factored into this chart, but many veterans may not have to pay the VA loan funding fee at all if they are disabled. And for some, the fee is greatly reduced if they are at a lower percent of disability.


Funding Fee Based on Loan Type


The loan type will also affect how much is a VA funding fee. For example, manufactured home loans require 1 percent of the loan amount to be paid for the VA home loan funding fee. Remember that all of the factors listed above affect how to calculate VA funding fee, but here’s how the fee is broken down for other loan types:

Manufactured Home Loans:  1.00%

Loan Assumptions:  0.5%

Cash-out Refinance:  3.3%

Streamline Refinance (IRRRL):  0.5%


A Small Price for Big Savings


At Low VA Rates, we offer even more benefits to our veteran borrowers than other VA lenders. Why? We don’t have any overlays, or additional rules that borrowers put in place to protect themselves from losing money. Overlays are not illegal. In fact, they are used by most lenders, but not by us. We put every VA rule in place, but nothing more than what the VA requires. Just one perk that comes out of this for you is that we have

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