Mortgage loans guaranteed by the Department of Veterans Affairs, commonly called VA loans, are one of the least expensive ways to finance a home purchase. Eligible military personnel can get loans at extremely attractive interest rates, with no required down payment, and they pay no mortgage insurance.

However, most qualifying veterans who take advantage of VA loans do pay one fee that other mortgages don’t include. Called the VA funding fee, this money is used to support the VA mortgage program. Even with this fee, a VA loan is an extremely economical way to buy a house.

What is the Fee?

The VA funding fee is calculated as a percentage of the amount of the loan. However, not every borrower will pay the same percentage. Funding fees for buying a home can range from nothing to 3.3 percent of the loan amount, and funding fees for refinancing can vary even more. The fee is determined by the loan purpose, the type of home purchased, the veteran’s military experience, and any down payment.

Of course, most people would like to pay no fee, but that option is only available to veterans who:

  • are receiving compensation for service-connected disabilities.
  • would be receiving compensation if they weren’t already getting paid for active duty or receiving retirement benefits.
  • are spouses of veterans who died while on duty or from a service-related disability.

Typically, if you are eligible for an exemption from the funding fee, that information will be noted on your Certificate of Eligibility (COE) from the VA.

How is the Fee Set?

Typically, most first time VA borrowers will pay a funding fee of 2.15 percent of the loan amount when buying a home with no down payment. With a 5 percent down payment, the first time borrower pays 1.5 percent. With a 10 percent down payment, the first time borrower pays a 1.25 percent funding fee.

Veterans who use their VA loan benefit more than once will pay the maximum fee of 3.3 percent unless they make a downpayment of at least five percent. With a down payment, their fees are the same as first time borrowers.

Members of the Reserves or National Guard pay higher fees. With no down payment, they will pay a 2.4 percent fee, with a five percent down payment they pay 1.75 percent, and with a 10 percent down payment, they pay a 1.5 percent fee.

Other funding fees include:

  • Cash-out refinances. Regular military veterans pay 2.15 percent the first time they use this option and 3.3 percent after that, while Reserves and National Guard pay 2.4 percent the first time and 3.3 percent thereafter.
  • VA streamline refinances. For all these loans, the funding fee is only 0.5 percent.
  • VA assumed loans. The fee for assuming a VA loan is also only 0.5 percent.
  • Manufactured homes. These have a funding fee of one percent, regardless of the type of veteran.
  • VA construction loans. These match the first time purchase loans for the types of veterans and down payment amounts

Paying the Fee

Veterans can pay all or part of the fee in cash, but most veterans roll it into their loan amount so they don’t need to come up with the cash at closing. Also, the seller can choose to pay the funding fee, along with some other closing costs, as long as the total of all fees paid by the seller doesn’t exceed four percent of the loan amount.

Find Out More

At Embrace Home Loans, we’re experts in VA lending. We’ll help you review your VA mortgage loan options and develop a loan that fits your budget and your housing needs. Call us today at 407-733-6425, and we can get started on helping you get into your new home.

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