What is a VA Funding Fee?

The VA mortgage is an outstanding loan program that eligible veterans and active-duty servicemembers can use to purchase or refinance a home. In fact, unless you are making a large down payment, you would be hard-pressed to find another loan program that can compare. The VA program provides financing with no money down and no monthly mortgage insurance payment at interest rates that are typically lower than most other programs.

While there is no monthly mortgage insurance on a VA loan, there is a funding fee included in the closing costs of most VA loans. The VA does not provide loans directly. Instead, they provide a guaranty to lenders to encourage them to provide loans with terms and conditions they otherwise would not be able to provide, such as $0 down payment. To over-simplify it, the VA is telling the lender that they will pay them money if the veteran defaults on the loan. The funding fee, paid to the Department of Veterans Affairs, is where the money comes from to pay the losses on the VA loans that go into default.

The funding fee varies based on several factors, including the nature of the veteran’s service, if there is a down payment and how much, and whether the veteran has had a VA loan before. Some veterans with service-connected disabilities may not have to pay the funding fee at all. Here are the current funding fee rates as of April 2017:

Type
of Veteran
Down
Payment
1st
Time Use
Subsequent
Use
Active Duty Service
Member/
Veteran of Active Duty Service
None
5% – 10%
10% or more
2.15%
1.50%
1.25%
3.30%
1.50%
1.25%
Reservist/National
Guard
None
5% – 10%
10% or more
2.40%
1.75%
1.50%
3.30%
1.75%
1.50%
Service-Connected
Disabled
0.00% 0.00%
NOTE: Cash Out Refinance loans are based on the percentages for no down payment, based on first time or subsequent use.

 

Type
of Loan
1st
Time and Subsequent Use
IRRRL 0.50%
NADL 1.25%
VA Assumption 0.50%

 

If you have questions about your eligibility or qualifications for a VA home loan, contact me at your convenience. There is nothing more satisfying to me than being able to serve those who have sacrificed and served us all.