With no need for a down payment, limits on closing costs, and no requirements for mortgage insurance, VA loans are an appealing option when you’re purchasing a home. That’s especially true if you don’t want to invest a lot of cash at the start. However, using a VA loan does incur a funding fee. Why does this fee exist? How does it work? How much is the VA funding fee?
How Much Is the VA Funding Fee?
As SmartAsset explains, the VA funding fee is a charge collected to help maintain the viability of the U.S. Department of Veterans Affairs’ home loan program. Sent directly to the VA, it is used to fund the program and offset the costs of reimbursing lenders’ losses if borrowers default on VA-guaranteed loans. It also helps shield American taxpayers from the financial burden of backing these loans.
Factors That Affect the VA Funding Fee
The VA funding fee isn’t a flat fee. As Military.com reports, a variety of factors are assessed when assigning a price tag for the funding fee. These factors normally include the size and type of the VA loan, the borrower’s service, whether they made a down payment, and how many times they’ve used VA loans. The fee is expressed as a percentage of the loan total, and it can generally be paid at the closing table or rolled into the loan.
As the National Law Review reports, people wishing to use a VA loan in the near future will have a new factor impacting their funding fee: the Blue Water Navy Vietnam Veterans Act of 2019. This legislation adjusts funding fees for VA loans that go to closing in the two-year period starting on January 1, 2020 and ending on December 31, 2021.
What Does the VA Funding Fee Cost?
How much will the VA funding fee add to the price of a home purchase? As the VA indicates, with purchase and construction or regular refinance loans that close in 2020 and 2021, borrowers whose qualifying service was via Active Duty, the Military Reserves, or the National Guard can now expect to pay the following:
- A 2.30% funding fee for first-time users with no down payment
- A 1.65% funding fee for first-time users with a down payment of at least 5%
- A 1.40% funding fee for first-time users with a down payment of at least 10%
- A 3.60% funding fee for returning users with no down payment
- A 1.65% funding fee for returning users with a down payment of at least 5%
- A 1.40% funding fee for returning users with a down payment of at least 10%
How much is the VA funding fee if you opt for an Interest Rate Reduction Refinance loan (IRRRL)? Whether it’s your first VA loan or merely your most recent one, the funding fee for IRRRLs is 0.5%.
Does Every Borrower Pay the VA Funding Fee?
While most people who use VA loans can expect to pay the VA funding fee, not everyone does. As The Mortgage Reports notes, borrowers who meet the following criteria can receive VA funding fee exemptions:
- The veteran is receiving VA compensation as a result of a service-connected disability.
- The veteran would be entitled to receive compensation for a service-related disability, but they are already receiving active duty pay or retirement pay.
- The service member has a proposed or memorandum rating from the VA that says they are eligible to receive compensation as a result of a pre-discharge claim. The rating must be in place before loan closing.
- The borrower is a surviving spouse of a veteran who died in service or from a service-connected disability.
- The service member is on active duty and provides proof of their status as a Purple Heart recipient before loan closing.
VA loans are intended to help service members and veterans become homeowners, and with their competitive interest rates, low upfront costs, and lenient underwriting requirements, it’s easy to see why they are an appealing option for eligible borrowers. Could a VA loan help you make your housing dreams a reality? If you’re wondering if a VA loan is the right choice for your situation, turn to PrimeLending of Manhattan, Kansas. We would be happy to help you explore your options. Plus, we offer 100 percent financing and no lender fees!