Finance

Understanding the VA Funding Fee

The VA Funding Fee is an assessment paid by income-eligible veterans to help offset the government’s cost of administering the home loan guarantee program. The VA Funding fee varies depending on factors such as down payment amount, type of service, and even county location, so it is important to know how much you will pay before applying for a mortgage with a VA Loan.

How much is the funding fee?

VA funding fees are calculated based on years of military service and adjusted according to geographic location. The more time in active duty, the lower the percentage used to calculate your funding fee. If veterans served at least 90 days of active duty in a war zone in one year, they do not have to pay any funding fees for a VA loan. If a veteran served less than 90 days, they are eligible to receive a reduction. This is the only instance where funding fees are reduced rather than eliminated entirely. A VA funding fee calculator is available to estimate the VA Funding Fee.

What is a good funding fee percentage?

A funding fee percentage of up to 3.3 percent is a current “good” fee for loans that have a down payment of less than 10 percent. If you have more than 10 percent to put down, funding fee percentages of up to 4.15 percent are considered good.

How do I find out what my percentage rate is?

Your lender will have the information you need to determine your funding fee, including your down payment amount and length of service. Your lender may also be able to offer assistance in completing the VA paperwork required for your file, so don’t be afraid to ask. They are your expert – use them!

How do I pay?

If you have not paid the funding fee upfront, lenders will usually roll it into your overall loan amount. You will have to pay this fee each month along with your regular mortgage payment for 30 years or 15 if you use an FHA streamline refinance option. It can also be financed as part of your overall settlement costs when obtaining a VA Home Loan.

What if I don’t pay the funding fee?

Failure to pay the VA Funding Fee is a violation of US Code Section 3729, and in most cases, will result in legal action. If you fail to pay your funding fee when it is due, your lender can place a lien on your home or stop paying for things like property taxes and homeowner’s insurance until you bring current all past-due fees. In addition, failure to pay the funding fee could mean losing future eligibility for additional VA Loan benefits, such as being able to use a “streamline refinance” option, which allows you to refinance without needing a new appraisal or credit underwriting.

What are the benefits of the VA Funding Fee?

The biggest benefit is the home loan guarantee program makes it possible for many people to purchase a home when they might not have been otherwise. The VA Funding Fee supports this notion by assessing qualified veterans as an investment that allows them to gain access to substantial benefits, including 100% financing with no money down for qualified applicants.

What are the disadvantages of the VA Funding Fee?

The funding fee can range from 1-3% for some veterans, which can quickly add up when using 100% financing. For example, if you were purchasing a $200,000 home and your lender requires a 2% funding fee, you would be paying an additional $4,000 on top of your down – something that can be quite a bitter pill to swallow.

How much does the funding fee vary?

The funding fee can vary significantly based on down payment amount, type of service, and even location. For example, if you purchase a home in El Paso County, Texas, you would be assessed 1% compared to 3% for veterans living in Westmoreland, Pennsylvania. This is not to say that this should impact your interest level in obtaining a VA Loan – be confident knowing that you are paying about average for an investor who has made it possible for every veteran to receive 100% financing with no money down!

Is there any way I can avoid the funding fee?

As mentioned above, various factors can impact the amount of your funding fee. For example, if you have a 10% down payment or superior credit, it is possible not to have to pay any funding fees at all. In addition, if a veteran served 90 days of active duty in a war zone in one year, they do not have to pay any funding fees for a VA loan. If a veteran served less than 90 days, they are eligible to receive a reduction. This is the only instance where funding fees are reduced rather than eliminated entirely.

So now you know what the VA Funding Fee is, how it’s calculated and how much you should expect to pay if you decide on a VA loan. Remember that this does not mean that other types of loans are less expensive; although they may be simpler or faster, there are often costs associated with obtaining any type of mortgage. Research all options before you make any financial decision.

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