The Department of Veterans Affairs provides VA backed loans to homebuyers who are veterans or qualified spouses. In terms of the VA funding fee, these loans offer lower interest rates and more lenient credit standards. As part of this program, mortgage insurance and down payment are also not required.
As amazing as this is, there is one catch: the VA Funding Fee itself. Since the VA insures home loans, the approved lenders are insured against loss should a borrower default on their loan. This program is not self-sustaining so individual participants pay a funding fee to contribute to it in another way.
To some borrowers, this funding fee can come as a surprise, and it can be substantial. Its purpose is to help defray the costs of VA guaranteed loans since borrowers are not required to pay Property Mortgage Insurance. The funding fee is a one-time fee that is paid directly to the Department of Veterans Affairs, and every time a borrower completes a VA loan transaction or Refinance, they have to pay this fee.
The sum of the funding fee is based on the type of service the borrower completed, how much the borrower has to put down, and if the borrower has ever had a VA backed loan. Repeated loans and use of this program is called “Subsequent Use.”
|Type of Veteran||Down Payment||Percentage for First-time Use||Percentage for Subsequent Use|
|Regular Military||0% to 4.9%||2.15%||3.3%|
|5% to 9.9%||1.50%||1.50%|
|10% or more||1.25%||1.25%|
|Reserves/National Guard||0 to 4.9%||2.4%||3.3%|
|5 to 9.9%||1.75%||1.75%|
|10% or more||1.5%||1.5%|
Fortunately, even though this fee is due upfront, the VA Funding Fee can be rolled into the total amount of a home loan. Also, it’s important to note that some disabled veterans who’ve been injured while in service are entitled to have this fee waived.