VA loans are a great mortgage option for eligible veterans, servicemembers and surviving spouses because they help borrowers get into a home while keeping costs down.
A typical mortgage loan will come with a variety of costs that can make getting a home difficult for buyers on a budget. A VA loan lets you sidestep some of these costs by allowing you to get a loan with no down payment and no mortgage insurance and limiting the amount you’ll pay in closing costs.
However, that doesn’t mean you can get a loan scot-free. One common cost associated with VA loans that can cause a lot of confusion for borrowers is the VA funding fee. Not sure what this fee is, how much it costs or if you’ll have to pay it? We’ve made it easy for you. Let’s take a closer look.
What Is The VA Funding Fee?
Most VA loan borrowers must pay a funding fee as part of the process of receiving their home loan. The cost of the funding fee varies from borrower to borrower. The fee is a percentage of your loan amount, and the exact percentage you’ll pay depends on a few different factors.
The funding fee exists to help offset the cost of the VA loan program, and it’s what helps ensure that borrowers continue to get all the great benefits that are associated with VA loans, including 0% down payment options with no mortgage insurance.
VA Funding Fee Chart 2020
|Down Payment||First-Time VA Borrower||
Subsequent VA Borrower
|5% or more||1.65%||1.65%|
|10% or more||1.4%||1.4%|
If you’re familiar with previous years’ funding fee guidelines, you’ll remember that National Guard and Reserve borrowers have typically been charged a higher percentage on their funding fees. As of January 1, 2020, eligible VA loan borrowers won’t be charged different percentages depending on whether they are active or reserve duty, so the above guidelines are applicable to all borrowers.
If you’re getting a VA loan as a cash-out refinance, the funding fee requirements are 2.3% for first-time borrowers and 3.6% for subsequent borrowers. For an Interest Rate Reduction Refinance Loan, also known as a streamline refinance, the funding fee is 0.5% across the board.
Who Is Exempt From The VA Funding Fee?
Not everyone has to pay the VA funding fee. The VA makes exceptions for certain individuals, depending on their situations.
The types of borrowers who are exempt from paying a funding fee, per the VA, include: veterans and servicemembers who are either eligible for compensation for a disability that is service-connected or currently receiving service-connected disability compensation; surviving spouses who meet the eligibility requirements for a VA loan; and active duty servicemembers who have been awarded the Purple Heart.
To get a VA home loan, you’ll first apply for a Certificate of Eligibility, which will state whether you’re exempt or nonexempt from paying the funding fee. Be sure your lender is aware of your exemption status.
If you don’t yet have a COE, the VA website has information on how to apply and what documentation you’ll need to provide.
VA Funding Fee Refund
What if you had a disability claim that was pending as you went through the process of getting your loan and buying your home, only to have it approved after you’d already closed and paid the funding fee? Though perhaps inconvenient, the good news is that you may be eligible for a refund of the fee if you’re found to be eligible for an exemption after closing.
The key is that you have to have been entitled to compensation prior to the date of closing. If the effective date of your compensation is after the date you closed on your home, you likely aren’t eligible for a refund.
If you believe you’re entitled to a refund, reach out to your lender or call your VA Regional Loan Center at (877) 827-3702.
VA Funding Fee: Things To Consider
Depending on the price of your new house, the funding fee can be a significant cost for VA borrowers. And it likely won’t be the only cost you incur.
Though many prospective home buyers worry about saving enough for the down payment, keep in mind that there are other costs associated with closing on a home that you’ll need to save for as well. In addition to a funding fee, you’ll also want to budget for closing costs, which could end up being 1% – 5% of the total loan amount.
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