The VA Home Loan Funding Fee: When and How Much to Pay

The VA Home Loan Funding Fee is a crucial component of the Veterans Affairs (VA) loan program, which provides financial assistance to eligible veterans, active-duty service members, and certain members of the National Guard and Reserves. Understanding when and how much to pay for the funding fee can help borrowers make informed decisions when securing their VA loan.

What is the VA Home Loan Funding Fee?

The VA funding fee is a one-time charge that helps maintain the VA loan program. Unlike mortgage insurance required for conventional loans, this fee is aimed at reducing the cost for taxpayers by providing a self-sustaining system to support the program. The amount you pay can vary based on several factors, including your military service, the type of loan, and the amount of down payment you provide.

When Do You Pay the Funding Fee?

The funding fee is typically paid at the time of closing, but there are options to finance it into the loan amount. This means you can choose to roll the funding fee into your mortgage, which allows you to avoid upfront costs, though this will increase your monthly payments.

How Much is the VA Funding Fee?

The amount of the VA funding fee varies depending on several factors:

• Type of Service: First-time users of the VA loan benefit often pay different rates than those who are reusing the benefit.
• Down Payment Amount: VA loans do not require a down payment, but if you do choose to put money down (e.g., 5% or more), the funding fee may decrease.
• Loan Type: The funding fee rates differ between purchase loans, refinance loans, and new construction loans.

As of 2023, here are some standard funding fee rates for first-time use:

• No down payment: 2.3%
• 5% down payment: 1.65%
• 10% down payment: 1.4%

For subsequent use of the VA loan benefit, the funding fee rates are slightly higher:

• No down payment: 3.6%
• 5% down payment: 1.65%
• 10% down payment: 1.4%

Exemptions from the Funding Fee

Some veterans and service members may be exempt from paying the funding fee altogether. Exemptions typically apply to:

• Veterans with a service-connected disability.
• Surviving spouses of veterans who died in service or from a service-related condition.

To determine your eligibility for these exemptions, it’s essential to obtain a Certificate of Eligibility (COE) from the VA.

Conclusion

The VA Home Loan Funding Fee is an important aspect of the VA loan program that can affect the overall cost of purchasing a home. Understanding when and how much to pay can help you plan your budget effectively. Always consider discussing your options with a mortgage lender or VA loan specialist to ensure you are making decisions that align with your financial goals.