As of 2024, the VA home loan program has helped 28 million veterans secure homeownership by offering generous mortgage terms. In the past year alone, the program contributed to more than 400,000 loan approvals exemplifying it’s relevance for the veterans. The VA funding fee helps sustain this program.
The Department of Veterans Affairs (VA) has initiated mortgage programs to help veterans, servicemen, and their surviving spouses. For veterans searching for a new home, you will have to pay a VA funding fee. Depending on the size of your down payment, the VA fund charge will differ.
As a veteran, understanding the fees involved in the mortgage process is important. A VA loan pre-approval is an essential tool to help you navigate this process.
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What Is a VA Funding Fee?
The Department of Veterans Affairs (VA) charges a single payment fee at the closing of a VA loan. This fee helps to cover the operating costs linked with the VA home loan program. It ensures that you as a borrower can enjoy the benefits including no down payment options and lower interest rates.
Why Do You Pay the VA Funding Fee?
The fee acts as insurance to mitigate any monetary risk to its program. This ensures that the VA can continue to offer benefits to future applicants even if you default on your loan.
The benefits include flexible repayment options and refinancing an existing mortgage. Ultimately, the funding fee reduces the financial burden on taxpayers.
How Much Is the VA Funding Fee?
Your funding fee depends on your down payment and the type of loan you opt for. These are the current VA funding fee charts:
Purchasing and Construction Loans:
| If Your Down Payment Is: | VA Funding Fee for Veteran’s First Mortgage Will Be: | VA Funding Fee for Second-time Use Will Be: |
| Less than 5% | 2.15% | 3.3% |
| 5% – 9.99% | 1.5% | 1.5% |
| More than 10% | 1.25% | 1.25% |
Cash-Out Refinances:
| VA Funding Fee: | Rate |
| For First-Time Use | 2.15% |
| For Second-Time Use | 3.3% |
Different VA Home Loans:
| Loans | VA Funding Fee Charged At: |
| Interest Rate Reduction Refinancing Loans (IRRLS) | 0.5% |
| Manufactured home loans (Not permanently affixed) | 1% |
| Loan assumptions | 0.5% |
| Vendee loan for purchasing VA-acquired property | 2.25% |
Note: The fee applies even if you previously used a VA loan for a manufactured home.
How Can You Pay the Fee?
To pay the funding fee you can either:
- Incorporate it with your VA home loan closing cost. Paying the full fee helps you avoid additional interest.
- Add the fee to your loan and pay it over time, along with principal and interest. This option reduces your upfront costs associated with the closing of a VA loan.
What Are the VA Funding Fee Exemptions?
Although the VA loan program issues a mandatory fee, a few specific exemptions are available. If you fit the category, you can be exempted from paying the funding fee on purchase and refinance loans. Here’s how you can know if you qualify:
- You’re a veteran’s surviving spouse.
- You receive VA compensation for any service-related disability.
- You’re an active duty service member and have yet to receive compensation.
- You have received a document from the Department of Veterans Affairs based on your service record.
- You’re currently on retirement pay and haven’t obtained the disability income yet.
- You’re a Purple Heart recipient.
How to Get a VA Funding Fee Exemption?
You’ll have to follow a process to be exempted from the funding fee.
- Step 1: Provide all the required documentation that proves your eligibility.
- Step 2: Process the VA loan application through an approved lender. They must fill out Form 26-8937 for qualification verification.
- Step 3: The Certificate of Eligibility (COE) verifies your overall qualification. Upon final approval, this key document will waive the funding fee.
Documents Required for Exemption
The documents required for fee exemptions depend on your specific conditions. Some of them include:
- VA Form 26-8937
- Certificate of Eligibility (COE)
- Proof of Disability
- Proof of Military Service
- Copy of Your Bank Statements
How Much Is a Fee With the Exemption?
| If Your Down Payment Is: | For VA First-Time Use Funding Fee: | For Second-Time Use: |
| Less than 5% | 2.30% | 3.60% |
| 5% – 9.9% | 1.65% | 1.65% |
| More than 10% | 1.40% | 1.40% |
VA Funding Fee vs Mortgage Insurance
Mortgage insurance has a different payment structure, program policies, and exemptions than the funding fee.
| Point of Distinction | VA Loan Funding Fee | Mortgage Insurance |
| Purpose | To help sustain the VA loan program while funding veteran’s homebuying services. | To mitigate the lender’s risk if you default on the loan. |
| Payment | It can be paid upfront with the closing cost or rolled into a loan amount so you can pay over time. | A monthly payment as part of your overall mortgage. |
| Exemption | You can be exempted under specific conditions. | There are no exemptions. Unless a down payment of 20% or more is made. |
| Amount | It varies depending on the type of loan, down payment amount and military category. | It depends on the type of mortgage insurance you have taken and the loan to value ratio. |
How to Get a VA Funding Fee Refund?
Your VA compensation should commence before your loan is closed. Eligibility for a refund generally arises in these scenarios:
- Despite the exemption to the fee, it was charged by mistake.
- If you were charged the fee at the time of your closing and subsequently received your disability compensation.
- If you’re receiving pension benefits and were accidentally charged the fee.
The process is simple. First, you must confirm your eligibility. Then, you can contact your VA lender or your VA regional center to initiate the refund.
Bottom Line
The VA funding fee ensures the program’s sustainability. While the fee is an upfront investment, it helps you access flexible credit options, almost no down payment, and low interest rates.
Moreover, the loan fee helps you access home financing with favorable terms. If you are planning to apply for a VA loan, make sure to understand the process thoroughly.
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Frequently Asked Questions
Can the seller pay the VA Funding Fee?
VA funding fee is charged to the borrower at the closing of the VA loan. The Veterans Affairs Department initiated it to help servicemen, veterans, and their surviving spouses reap the benefits of low interest rates and no down payment.
How is the VA Funding Fee calculated?
VA funding fee varies based on the type of loan, usage , military category, and down payment amount.
Is the funding fee applicable to a VA loan second home?
For VA loan second home borrowers need to match the eligibility criteria of the Department of Veterans Affairs. VA allows each borrower a basic entitlement amount. Further, you as a borrower can secure another loan by paying the VA funding fee.
