Understanding VA Loan Funding Fees

What Are VA Loan Funding Fees and How Do They Work?

If you’re exploring a VA loan for your home purchase, you might have heard about the VA funding fee. While it might sound like just another closing cost, this fee is unique to VA loans and actually serves an important purpose. Let’s break down exactly what you need to know about VA funding fees and how they might affect your home buying journey.

How Much Is the VA Loan Funding Fee?

The VA funding fee varies depending on your situation, but here’s the straightforward breakdown:

• First-time VA loan users: 2.15% of your loan amount
• Subsequent VA loan users: 3.3% of your loan amount

Let’s put that into real numbers. Here is an example:

For a $300,000 home purchase:

• First-time user: $6,450 funding fee
• Subsequent use: $9,900 funding fee

Do I Have to Pay the VA Funding Fee Upfront?

Here’s some good news that surprises many borrowers: you don’t need to pay the funding fee out of pocket. The fee can be rolled into your loan amount, making it part of your monthly payments. This is one of the most borrower-friendly aspects of VA loans.

Let’s look at how this works in practice:

Example: $300,000 Home Purchase (First-time use)

• Purchase Price: $300,000
• Funding Fee: $6,450
• Total Loan Amount: $306,450
• Added to Monthly Payment: Approximately $30-35 (depending on interest rate)

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How Can I Lower My VA Funding Fee?

This is where strategic planning can save you thousands of dollars. You have significant control over your funding fee rate through your down payment amount:

No Down Payment:

• First-time use: 2.15%
• Subsequent use: 3.3%

5% Down Payment:

• Both first-time and subsequent use: 1.5%

10% Down Payment:

• Both first-time and subsequent use: 1.25%

Let’s see how this plays out with real numbers on a $400,000 home:

No Down Payment:

• First-time use: $8,600 funding fee (2.15%)
• Subsequent use: $13,200 funding fee (3.3%)

5% Down Payment ($20,000):

• Funding fee drops to $6,000 (1.5%)
• Savings: $2,600 for first-time users, $7,200 for subsequent users

10% Down Payment ($40,000):

• Funding fee drops to $5,000 (1.25%)
• Savings: $3,600 for first-time users, $8,200 for subsequent users

When Do I Pay the VA Funding Fee?

The funding fee is paid at closing, but there are several important timing considerations:

1. If you’re rolling it into your loan, it becomes part of your closing costs
2. If you’re paying it separately, it must be paid at the time of loan closing
4. If you’re found to be exempt after paying closing, sometimes you can request a refund

Who Doesn’t Have to Pay the VA Funding Fee?

Several groups are exempt from paying the VA funding fee:

• Veterans receiving VA disability compensation
• Veterans eligible for VA compensation but receiving retirement or active duty pay instead
• Veterans rated eligible to receive compensation due to pre-discharge programs
• Surviving spouses of veterans who died in service or from service-connected disabilities
• Service members who provide evidence of being awarded the Purple Heart

Why Does the VA Charge a Funding Fee?

The VA funding fee serves several important purposes:

1. It helps sustain the VA loan program for future generations
2. It reduces the cost to taxpayers
3. It allows the VA to guarantee loans with no down payment
4. It helps maintain the program’s flexible credit requirements
5. It enables the VA to offer these loans without monthly mortgage insurance

VA Loans vs. Conventional Loans: Understanding the Cost Difference

While the funding fee might seem like a significant expense, let’s compare the costs with a conventional loan:

Example: $400,000 Home Purchase

Conventional Loan:

• Down Payment (3%): $12,000
• Monthly PMI (estimate): $200-300
• Total PMI cost over 5 years: $12,000-18,000

VA Loan (First-time use):

• Down Payment: $0
• Funding Fee: $8,600
• Monthly PMI: $0
• Total cost savings over 5 years: $3,400-9,400

Frequently Asked Questions About VA Funding Fees

Can I finance the funding fee if I’m making a down payment?

Yes! Even if you choose to make a down payment to reduce your funding fee, you can still finance the remaining fee amount into your loan.

What happens to my funding fee if I sell my house?

The funding fee is a one-time charge at closing. If you sell your house, you won’t receive a refund, but the fee is typically recovered through your home’s appreciation.

Does a cash-out refinance have a different funding fee?

Yes, cash-out refinance loans have their own funding fee structure. The fee is typically 2.15% for first-time use and 3.3% for subsequent use, regardless of how much equity you have in your home.

If I’m exempt from the funding fee, do I still need to document my status?

Yes, you’ll need to provide proper documentation of your exempt status, which our team can help you obtain. Please call a VA loan expert for help at 800-720-0250

Can the seller pay my funding fee?

Yes! The seller can pay your funding fee as part of their contribution to closing costs.  But, they have to pay the whole funding fee, not just a part of it.

How Do I Get Started with My VA Loan?

Understanding the funding fee is just one piece of the VA loan puzzle. Here’s your next steps:

1. Get a clear picture of your funding fee – we can help calculate exactly what you’ll pay
2. Explore whether making a down payment to reduce your funding fee makes sense for your situation
3. Find out if you might qualify for a funding fee exemption
4. Consider how the funding fee fits into your overall financial picture
5. APPLY ONLINE NOW or call a VA loan expert at 800-720-0250

Why Work with VA Loan Specialists?

The VA funding fee is just one example of how VA loans differ from conventional mortgages. Working with specialists who handle VA loans every day means:

• Getting accurate information about your funding fee and potential exemptions
• Understanding how the fee fits into your overall loan picture
• Making informed decisions about down payments and fee reduction
• Having an expert guide you through the entire process
• Ensuring you don’t overpay or miss potential savings opportunities

Don’t let concerns about the VA funding fee keep you from exploring your VA loan benefits. We’re here to help you understand your options and make the best choice for your situation.

Ready to get started? Call 800-720-0250 or APPLY ONLINE NOW and let our VA loan specialists guide you through each step with confidence.

Take Action with HomePromise

Call HomePromise at 800-720-0250 today! Get a free consultation and expert guidance to unlock your full benefits and turn your dream home into reality. We’ll be with you every step of the way. Call now, don’t wait!