The VA loan funding fee is a one-time payment that is required by the U.S. Department of Veterans Affairs (VA) when a borrower takes out a VA loan. This fee is designed to help sustain the VA home loan program, ensuring that it remains self-sustaining and available for future veterans and service members. Understanding this fee is crucial for anyone considering a VA loan as part of their home-buying journey.
The funding fee amount varies based on several factors, including whether the borrower has utilized a VA loan before, the size of the down payment, and the type of service performed (active duty, reserves, or National Guard). For first-time VA loan users with no down payment, the funding fee is typically around 2.3% of the loan amount. However, for subsequent usage, this fee can increase to 3.6% if no down payment is made.
For borrowers who do make a down payment, the funding fee decreases. For instance, if a borrower puts down between 5% to 10%, the fee reduces to 1.65% for first-time users and can be 2.3% for subsequent use. For those who provide a down payment of 10% or more, the fees may drop to 1.4% and 1.65% respectively. These percentages demonstrate that making a down payment can result in significant savings on the funding fee.
It's important to note that the VA funding fee can be financed into the loan itself. This means borrowers can choose to include the funding fee in their total loan amount, spreading the cost over the life of the loan instead of needing to pay it upfront. This flexibility can make VA loans more accessible for many veterans and military families.
Additionally, certain individuals may be exempt from paying the VA funding fee. This includes veterans who are receiving VA disability compensation, those who are rated as totally disabled, and qualifying surviving spouses of veterans who have died in service or from a service-related disability. Knowing if you qualify for an exemption can significantly reduce out-of-pocket expenses when obtaining a VA loan.
In summary, the VA loan funding fee is a crucial aspect of the VA loan program that helps ensure its continuity for future generations of veterans. Understanding how the fee works, its varying rates, and potential exemptions can empower borrowers to make informed decisions about their home financing options.
