The VA loan program, one of the two zero-down payment mortgage programs available on the market, was introduced to help the U.S veterans fulfil their dream of homeownership. Though VA home loans have numerous benefits compared to conventional loan programs, they also have a unique additional cost - the VA funding fee. If you are planning to apply for a VA home loan, it is likely that you’ll be charged a VA funding fee, regardless of your credit score. Here will take a closer look at the requirement and the exemptions related to VA loan funding fees.

Introduction

The VA funding fee is a one-time fee associated with obtaining a VA loan, no matter whether it is a VA purchase or refinance. The lender sends the funding fee directly to the VA, which is used to offset the cost of administering the loans and covering up defaulted loans, thereby keeping the loan program self-funded.

Calculation

Borrowers can either pay the fee upfront or include it in their monthly mortgage payment. The funding fee amounts to a certain percentage of the loan, which is calculated based on several factors, such as the nature of borrower’s service, whether the borrower has already received a VA loan, and more.

Exception

All veterans obtaining a VA loan are entitled to pay a funding fee at the time of closing, barring some exceptions who are required to present the Certification of Eligibility (COE) denoting their eligibility. These include:

• A veteran who is entitled to receive or is already receiving a VA compensation for a service-connected disability

• The surviving spouse of a veteran who dies in service or from a service-connected disability, are exempted from paying a funding fee.

In addition, regular military members pay lower funding fees than Reservists and National Guards.

Funding Fee Percentage Breakdown

For Regular Military Personnel

At zero down payment

• First time loan borrowers - 2.15 percent

• Subsequent use - 3.3 percent

At 5-10 percent down payment

• First time loan borrowers - 1.5 percent

• Subsequent use - 1.5 percent

At 10 percent and above down payment

• First time loan borrowers - 1.25 percent

• Subsequent use - 1.25 percent

For Reserves and National Guards

At zero-down payment

• First time loan borrowers - 2.4 percent

• Subsequent use - 3.3 percent

At 5-10 percent down payment

• First time loan borrowers - 1.75 percent

• Subsequent use - 1.75 percent

At 10 percent and above down payment

• First time loan borrowers - 1.5 percent

• Subsequent use - 1.5 percent

For veterans who refinance their existing VA loan, funding fee is 0.5 percent of the loan amount.

Refund

Time is of the essence when it comes to disability rating and funding fee exemption. If an applicant has already paid the fee but later qualifies for the disability exemption, they may be eligible for a refund. In such cases, the veteran must contact us. A VA Regional Loan Center can also provide them with more information on the way to proceed. If the fee was paid in cash, the applicant will get the refund in cash. However, if the fee was paid from the loan proceeds the lender receives the refund as an overpayment on the loan balance.

Conclusion

As they say, “knowledge is the key to success”; educating yourself about different aspects of a VA loan, including funding fee and refund policies, is essential to making the most out of this initiative by the U.S. Department of Veterans Affairs.