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So you’re interested in a VA loan, but you’re confused about some of the terms? You’re not alone. Many people have questions about its many terms, conditions and eligibility requirements.

But one of the most common questions asked about VA loans is “What is the funding fee?” Fortunately, I’m here for you, friend! Allow me to explain.

Simply put, the funding fee is a cost associated with obtaining a VA loan. Because VA loans are paid for both by the government and taxpayer dollars, the funding fee helps to offset the cost of administering the loan. This helps to ensure that the loan continues to require no down payment and no monthly mortgage insurance.

There are some cases in which the VA does not charge a funding fee, but you must match a list of VA-approved situations in order to qualify for exempt status.  According to the VA, veterans/service members are exempt from paying the funding fee if:

• You receive VA disability
• You are eligible to receive VA disability but receive retirement benefits instead
• You are eligible to receive VA disability as a result of a pre-discharge exam and rating
• You are eligible to receive VA disability but have been re-enlisted or recalled to active duty
• You are a surviving spouse of a veteran who died in service or from service-connected disabilities

Even if you do meet the criteria, your exemption status is not automatically applied to your loan. You must apply to claim the funding fee exemption, which one of our home loan experts can help you with. However, you are required to have one or more of the following documents to prove your exemption:

• A signed VA Form 26-8937
• A copy of the original VA notification of disability rating and documentation of the veteran’s service retirement income
• The Certificate of Eligibility that states the borrower is entitled as an unmarried surviving spouse

It’s important to note that while all VA loans require a funding fee, the fees are not the same across the board. The amount of the fee depends on a number of factors like how much down payment you have toward your loan and your military status.

Here is a breakdown of the VA loan funding fee:

For Veterans/Service members who want to refinance their existing VA loan, the funding fee is only .5%

You have the option to pay the funding fee in cash, or you can finance the fee with your VA loan, but you are required to pay in full at closing.