Understanding the VA Funding Fee
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Understanding the VA Funding Fee
Connect with a VA Loan Expert
By clicking the 'Learn More' button above, I authorize Arbor Home Loans to contact me using an automated dialing system, even if the telephone number is a cellular phone or other service for which the party is charged. I understand that I am not required to provide this consent in order to obtain goods or services from Arbor Home Loans. I agree to receive disclosures and communications in electronic form and I confirm that I have a working computer system and an internet website browser to view this webpage and this Loan inquiry form. I agree that Arbor Home Loans may contact me by mail, telephone (mobile devices including SMS and MMS) or email in connection with my request even if my telephone number or email address appears on a Arbor Home Loans internal Do Not Call / Do Not Email List, a State or National Do Not Call Registry, a Do Not E-Mail list, or any other Do Not Contact List.
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Understanding The Va Funding Fee
What is the VA Funding Fee?
The VA funding fee is a one-time cost paid by veterans, active-duty service members, and eligible surviving spouses when taking out a VA loan. This fee helps keep the VA loan program self-sustaining by offsetting its costs, allowing the program to remain available to future borrowers without relying heavily on taxpayer dollars. The fee applies whether you're purchasing, building, or refinancing a home, and is paid directly to the Department of Veterans Affairs. By collecting this fee, the VA can continue to guarantee loans, enabling lenders to offer lower interest rates and more flexible terms for veterans and military members.
How is the VA Funding Fee Calculated?
The VA funding fee is calculated as a percentage of the total loan amount. Several factors influence the exact percentage, including:
1. Down Payment Amount: Putting down 5% or more can reduce the funding fee.
2. Loan Usage: First-time VA loan borrowers typically pay a lower funding fee than those using their benefit for a subsequent loan.
3. Loan Type: Purchase loans, refinance loans, and VA cash-out refinances have different fee percentages.
For example, for a first-time VA loan borrower with no down payment, the fee is 2.15% of the loan amount for veterans or active-duty service members. For subsequent use, it increases to 3.3%. However, if you put down 5% or more, the fee drops.
Does the VA Funding Fee Change?
Yes, the VA funding fee can change over time. The fee percentages are periodically reviewed by the VA and may be adjusted based on the financial needs of the loan program. In fact, funding fee rates have changed several times in the past to ensure the program’s long-term viability.
What About the VA Funding Fee and Refinances?
The VA funding fee also applies to VA refinance loans, though the percentage can vary based on the type of refinance and whether you’ve used the VA loan program before. There are two primary types of VA refinance loans:
VA Interest Rate Reduction Refinance Loan (IRRRL)
This type of refinance is commonly referred to as a VA streamline refinance. It allows you to refinance an existing VA loan to get a lower interest rate or switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. For IRRRLs, the VA funding fee is typically much lower than for a purchase loan—only 0.5% of the loan amount, regardless of whether it’s your first use or a subsequent use of the VA loan benefit.
VA Cash-Out Refinance Loan
This refinance option allows you to replace your existing mortgage with a new loan and take out cash based on your home’s equity. The funding fee for a cash-out refinance is the same as a purchase loan. For first-time VA loan users, the fee is 2.15% of the loan amount, and for subsequent use, it increases to 3.3%. If you make a down payment of at least 5%, the funding fee decreases.
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Are There Any Exemptions for the VA Funding Fee?
Yes, there are several exemptions from the VA funding fee. You are exempt if you fall into one of the following categories:
Veterans with Service-Connected Disabilities
Veterans with a service-connected disability are exempt from paying the VA funding fee as a way to recognize and support those who have been injured or disabled during their military service. There is no specific minimum disability percentage required to qualify for a VA funding fee exemption. As long as you are receiving VA disability compensation for a service-connected disability, even at 0%, you are eligible for the exemption.
Surviving Spouses
A surviving spouse may be exempt from paying the VA funding fee if they are receiving Dependency and Indemnity Compensation (DIC) from the VA. This exemption is provided as a benefit to honor the sacrifices made by the spouse and their family. The funding fee is generally used to offset the cost of the VA loan program, but the VA waives this fee for surviving spouses as part of their support for military families who have lost a service member.
Active-Duty Purple Heart Recipients
Active-duty Purple Heart recipients are exempt from paying the VA funding fee as a recognition of their service and sacrifice. The VA offers this exemption as a benefit to honor those who have been wounded in combat and awarded the Purple Heart.
Can You Get a Refund on the VA Funding Fee?
In some cases, you can get a refund on the VA funding fee. If you paid the funding fee and were later awarded VA disability compensation with a retroactive effective date covering your loan closing, you may be eligible for a refund. You would need to apply for the refund after receiving your disability rating.
What is the Cost of the VA Funding Fee?
The cost of the VA funding fee varies depending on the factors mentioned above. Here are some typical funding fee percentages for a $200,000 loan:
- First-time VA borrower with no down payment: 2.15%, or $4,300.
- First-time VA borrower with a 5% down payment: 1.5%, or $3,000.
- Subsequent VA borrower with no down payment: 3.3%, or $6,600.
You can either pay the funding fee upfront at closing or roll it into your loan amount.
Learning Center
Is there a VA Construction Loan?
The VA construction loan provides a great alternative to traditional construction loans, which often require a large down payment.
What is a VA Assumable Loan?
A VA assumable loan offers the unique advantage of allowing a new buyer to take over the seller's existing mortgage, potentially securing a lower interest rate and better terms.
What are the VA Mortgage Requirements?
If you’re considering a VA loan, you’re likely wondering what it takes to get approved. VA loans are designed to help veterans, active-duty service members, and their families achieve homeownership with favorable terms.