VA Loan Tips | What is the VA Funding Fee?

If you’re a veteran in the Colorado Springs area, using your VA benefits can be confusing.  One important question I’m often asked is what the VA funding fee is and why it’s something you as the buyer must pay.

The VA funding fee is an essential part of the VA loan process and required on all VA loans with one exception.  The purpose of the VA funding fee is to enable borrowers to contribute towards the cost of their benefit and also allows for a reduction in the cost to taxpayers.

For the majority of first time home buyers the VA funding fee is 2.15% of the purchase price. For second time users or subsequent users since you do have the ability to use your VA benefit an unlimited amount of times, the funding fee is 3.30%.

If you are a member of the Reserves or National Guard, the funding fee does differ from above.  For first time home buyers with no down payment the funding fee would be 2.4%.  If you’re able to come up with at least a 10% down payment, your fee is reduced to 1.75%.  For subsequent users, no down payment requires a 3.3% fee, up to 10% down payment requires a 1.75% fee, and 10% or more requires a 1.5% fee.

For certain veterans, there are exceptions and an opportunity to avoid the funding fee altogether.

The following people would be exempt from paying the funding fee:

• Veterans receiving VA compensation for service-connected disabilities. (Must be designated at a minimum 10% disabled)

• Veterans who would be entitled to receive compensation for service-connected disabilities if they did not receive retirement pay.

• Surviving spouses of veterans who died in service or from service-connected disabilities (whether or not such surviving spouses are veterans with their own entitlement and whether or not they are using their own entitlement on the loan).

The VA funding fee is typically added to the purchase price and not required cash due at closing.  For example, a first time home buyer loan amount would look like this:

Purchase Price:  $200,000

Loan Amount: $200,000

VA Funding Fee: $4300

Total Loan Amount with VA Funding Fee: $204,300

If you prefer, you can pay the funding fee at closing rather than financing or it is an allowable closing cost to be paid by the seller.

The VA home loan is a terrific benefit, but not always the right choice.  Discuss the many options available to you with your Loan Officer prior to making a decision.

For more information on your VA Home Loan benefits, check out our VA Website!

VA Loan Tips | What is the VA Funding Fee? was written by Rebekah Radice.