When it comes to securing a home loan, military service members and veterans can benefit from the VA loan program. Established in 1944 by the U.S. Department of Veterans Affairs, this program offers affordable mortgage options to eligible individuals. One essential component of a VA loan is the VA funding fee. This blog post aims to explain what the VA funding fee is, who has to pay it, how much it will be reduced on loan applications after April 7, 2023, and why it’s an essential part of the loan process.
What is the VA Funding Fee?
The VA funding fee is a one-time payment that borrowers pay as part of their VA home loan. This fee helps to offset the costs of the VA loan program, ensuring its continued availability to future generations of veterans and service members. The VA funding fee is calculated as a percentage of the total loan amount and is typically included in the loan itself, meaning borrowers do not need to pay the fee upfront.
Why is the VA Funding Fee Necessary?
The VA loan program provides numerous benefits to eligible borrowers, including competitive interest rates, flexible underwriting standards, and the option to finance 100% of the home’s purchase price without the need for private mortgage insurance (PMI). However, these advantages come at a cost to the government. The VA funding fee helps to cover the expenses associated with administering the program, including the cost of guaranteeing loans in case of borrower default.
Who is Required to Pay the VA Funding Fee?
Most VA loan borrowers are required to pay the VA funding fee. However, certain individuals are exempt, including:
- Veterans receiving VA disability compensation for a service-related disability
- Surviving spouses of veterans who died in service or from a service-related disability
- Active-duty service members who have received a Purple Heart
- Those who are eligible for VA benefits based on a pre-discharge disability rating
How Much Did The VA Funding Fee Change?
VA Purchase and New Construction
|Down Payment Amount||Funding Fees prior to 4/7/2023||Funding Fees on or after 4/7/2023|
|Down payments less than 5%||First Use: 2.3% of the loan amount||First Use: 2.15% of the loan amount|
|Subsequent Use: 3.6% of the loan amount||Subsequent Use: 3.3% of the loan amount|
|Down payments of 5% – 9.99%||1.65% of the loan amount||1.5% of the loan amount|
|Down payments greater than or equal to 10%||1.4% of the loan amount||1.25% of the loan amount|
VA Cash Out Refinance
|First or Subsequent Use||Funding Fees prior to 4/7/2023||Funding Fees on or after 4/7/2023|
|First Use||2.3% of the loan amount||2.15% of the loan amount|
|Subsequent Use||3.6% of the loan amount||3.3% of the loan amount|
|VA IRRRL and Assumptions|
|Funding Fees prior to 4/7/2023||Funding Fees on or after 4/7/2023|
|IRRRLS||0.5% of the loan amount|
This Funding Fee change reverts the funding fee back to its pre-2020 rate. The fee was temporarily increased because of the Blue Water Navy Vietnam Veterans Act of 2019 in order to help pay for benefits provided to certain Vietnam veterans. The provision that increased the fee has now expired.