Veterans and their family members can benefit from a VA guaranteed loan since no down payment is required and interest rates are lower than most other types of loans, including conventional loans and FHA loans. Nonetheless, there are a number of requirements associated with VA loans, including a funding fee that all veterans must pay in order to obtain the guarantee.
At Community Mortgage, we assist veterans with obtaining VA loans in the greater San Diego area. If you have questions about any of the requirements, including the funding fee, or need assistance obtaining a VA loan, call our office today at (619) 692-3630.
A Primer on the VA Loan Funding Fee
The VA Funding Fee is a one-time fee that must be paid directly to the Department of Veterans Affairs (VA) for every home purchase or refinance loan, since borrowers are not required to make a down payment or obtain mortgage insurance. This fee is essentially designed to lower the cost to taxpayers even though the VA loan program has a low foreclosure rate due to the debt-to-income and residual income requirements for VA loans.
Nonetheless, the VA guarantee protects lenders in the event of a borrower’s default, and the funding fee is used to offset those loans that do go into default. Ultimately, the fee ensures the viability of the VA Home Loan program for future generations of service members.
How Much is the VA Funding Fee?
The funding fee is a percentage of the loan amount and varies based on a number of factors, including:
- The type of loan – purchase or refinance
- The borrower’s military status – active duty, guard, reserve or retired
- If the borrower is a first-time or subsequent VA loan applicant
- Whether the borrower makes a down payment
The funding fee can range from 1.25 percent to 3.3 percent of the total loan amount. Generally, a first time borrower who makes a down payment will pay a lower funding fee. The funding fee for second time users who do not make a down payment, will be higher. Guard members and reservists will pay a slightly higher percentage. If you have questions about the exact funding fee you may be required to pay, feel free to call one of our mortgage consultants.
How is the VA funding fee paid?
The VA funding fee must be paid at the time of the closing. However, there are a number of options to finance the fee. Some borrowers decide to pay the fee upfront in cash, while others include the VA funding fee in the loan, in which case, it will be part of the monthly mortgage payment.
Are there any exemptions to the VA funding fee?
Although borrowers using the VA guaranty are required to pay the funding fee, there are exemptions for some veterans, including:
- Veterans who receive benefits for a service-connected disability
- Veterans who are 10 percent disabled
- Veterans eligible to receive benefits for a service connected disability and who did not receive retirement or active duty pay
- A surviving spouse of a veteran who died in service or due to a service-connected disability
Are there other closing costs for VA loans?
In addition to the the funding fee, there are other closing costs associated with VA loans. However, when you purchase a home, closing costs such as appraisal fees, escrow fees, title fees credit report fees, recording fees and state and local taxes may be paid by the seller. Moreover, the lender, not the VA, determines the interest rate, discount points and closing costs, all of which vary from lender to lender.
How Community Mortgage Serves the Military Community
At Community Mortgage, our mortgage consultants work closely with service members, veterans and their families to arrange VA loans for home purchases and refinancings. We collaborate with a network of private lenders that offer VA loans and can help you navigate the process. Call our office today at (619) 692-3630 or fill out a contact form for a free, personalized consultation to learn about your VA loan options.