VA Funding Fee

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The Funding Fee

The VA loan falls into the category of a government-backed mortgage.  If a VA lender processes and approves a VA loan and the loan eventually goes into default, the VA lender is partially compensated by the VA.  But the VA needs money used to compensate VA lenders when VA loans go bad.  Those funds come from the VA funding fee.

First, VA loans rarely go bad.  Historically they have the lowest delinquency rates of any loan type currently in the market. But some do go into default and when they do the VA lender is compensated.  Every VA loan has a funding fee and the amount will vary based upon certain characteristics of the loan type and the VA borrower.   The VA funding fee is expressed as a percentage of the loan amount yet is not an out-of-pocket expense as it can be rolled into the VA loan.   This chart shows how much the funding fee will be based upon various factors.

First Time Homebuyer

Down Payment %

Active Duty/Veteran

National Guard/Reserves

-0-

2.15%

2.40%

5-10

1.50%

1.75%

10+

1.25%

1.50%

Subsequent Use

Down Payment %

Active Duty/Veteran

National Guard/Reserves

-0-

3.30%

3.30%

5-10

1.50%

1.75%

10+

1.25%

1.50%

Cash Out Refinance

Use

Active Duty/Veteran

National Guard/Reserves

First Time

2.15%

2.40%

Subsequent Use

3.30%

3.30%

Streamline Refinance

Use

Active Duty/Veteran

National Guard/Reserves

First Time

0.5%

0.5%

Subsequent Use

0.5%

0.5%

For example, if you’re a first time homebuyer and a qualified veteran using a zero down VA loan, your funding fee is 2.15 percent of the loan amount.  If the sales price of your home is $200,000 the funding fee is $4,300.  While it’s not a requirement to roll the $4,300 funding fee into the loan amount, most VA borrowers do so. Your new loan amount would then be $204,300.

If you’re refinancing your VA loan and you’re active duty, the funding fee is 0.5 percent, or $1,000, and so on.   There is an exception: those with service related disabilities who receive VA disability payments pay no funding fee regardless of the use or loan type.

In essence, the VA funding fee can be viewed as an insurance premium.  The funding fee is set by and ultimately collected for the Department of Veterans Affairs that oversees the VA home loan program.  This ultimate loan guarantee by the VA lets lenders know they have an additional layer of protection when considering a VA loan and helps more VA loans get approved.