Understanding the VA Funding Fee
Introduction
The VA loan program is a great option for military servicemembers, veterans, and eligible spouses looking to purchase or refinance a home. One of the unique features of this program is the VA Funding Fee. This fee helps to offset the costs of the VA loan program and allows for more veterans to take advantage of this benefit. In this article, we will go over what the VA Funding Fee is, how it works, and why it is important to understand.
What is the VA Funding Fee?
The VA Funding Fee is a one-time fee that is charged by the Department of Veterans Affairs (VA) for the use of their loan program. This fee helps to offset the costs of the program and makes it possible for the VA to guarantee loans with no down payment required and no private mortgage insurance (PMI) necessary.
The amount of the VA Funding Fee is based on a percentage of the loan amount and varies depending on the type of loan, the military service status of the borrower, and whether or not the borrower has used their VA loan benefit before. The fee can be paid upfront at closing or rolled into the total loan amount.
It is important to note that the VA Funding Fee is not the same as PMI. PMI is a fee charged by private mortgage insurance companies to protect lenders in case a borrower defaults on their loan. Because the VA Loan program does not require PMI, the VA Funding Fee takes its place to help cover the costs of the program.
How Does the VA Funding Fee Work?
The VA Funding Fee is calculated as a percentage of the loan amount. The percentage varies depending on the type of loan and the military service status of the borrower. For most loans, the percentage is between 1.4% and 3.6% of the loan amount.
For example, if you were to take out a VA loan for $250,000 and you were a first-time user of the VA loan program, your VA Funding Fee would be 2.3% of the loan amount, or $5,750. If you chose to finance the fee into the loan, your loan amount would be $255,750.
It is important to note that the VA Funding Fee may be waived for certain veterans, such as those receiving disability compensation from the VA or surviving spouses of a veteran who died in service or from a service-related disability.
Why is it Important to Understand the VA Funding Fee?
Understanding the VA Funding Fee is important because it is a cost that is associated with the VA loan program and can impact the overall cost of your loan. It is important to factor in the VA Funding Fee when determining your budget and the overall affordability of a home.
Additionally, understanding the VA Funding Fee can help you make decisions about how to finance the fee. While you can pay the fee upfront, many borrowers choose to finance the fee into the total loan amount. While this allows you to avoid an upfront cost, it also means that you will be paying interest on the fee for the life of the loan.
Finally, understanding the VA Funding Fee can help you be informed about the benefits of the VA loan program. While the fee may seem like an added cost, it is important to remember that it is helping to fund a program that allows eligible borrowers to purchase or refinance a home with no down payment and no PMI required.
The Bottom Line
The VA Funding Fee is a one-time fee that is charged by the Department of Veterans Affairs for the use of their loan program. The fee helps to offset the costs of the program and allows the VA to guarantee loans with no down payment and no PMI required. Understanding the VA Funding Fee is important because it can impact the overall cost of your loan and can help you make informed decisions about how to finance the fee.
If you are a military servicemember, veteran, or eligible spouse interested in the VA loan program, it is important to speak with a lender who can provide you with more information about the VA Funding Fee and how it applies to your particular situation.