Understanding a VA funding fee can be time-consuming, but knowing the details can save you time and money as a future homebuyer. This one-time fee applies to VA-backed and VA-direct home loans. Although the funding fee adds a cost, the VA reduces other fees. The consistently lower fees and improved rates provided by the VA offset funding expenses. Compare lenders to see which one has the best program and team for you.
VA Funding Fee Explained
VA funding fees are one-time charges on VA home loans that are paid to the U.S. Department of Veterans Affairs.
Is the VA Funding Fee Part of Closing Costs?
A VA funding fee is considered part of closing costs. A closing cost is paid at the close or end of a real estate transaction such as buying a single-family home. The fee can be fully paid at closing or included in the loan and gradually paid off over time. You can refinance a VA loan to access favorable terms and rates. Refinancing can allow a borrower to shift from a loan with a variable interest rate to a loan with a fixed interest rate. Speak with a lender to understand the process of refinancing loans.
VA loans have different closing costs compared to conventional loans. For example, VA loans do not require a down payment. However, certain closing fees such as credit report fees, appraisal fees and loan origination fees could potentially apply. When using a VA loan, individuals cannot be charged an origination fee that’s more than 1% of the total loan. This limitation on origination fees allows veterans to pay lower fees. Reasonable fees make the goal of homeownership more attainable.
Reputable lenders also charge additional closing costs. Compare top mortgage lenders to see which would work best for you. Examine the loan offerings, customer reviews and available resources to better understand the quality of each potential lender. Some lenders have a wide selection of reputable resources such as informative blog posts, videos and responsive customer service designed to promptly address and inform potential borrowers.
Who Is Required to Pay?
Veterans, service members and eligible individuals pay a VA funding fee when using VA home loans. Eligible individuals include survivors of service members.
How Much Is the VA Funding Fee?
The VA funding fee depends on multiple factors such as the type of loan and total loan amount. The VA loan program has VA loans ranging from VA streamline refinance loans to VA purchase loans, VA construction loans, VA Native American direct loans (NADLs) and interest rate reduction refinance loans (IRRRL). The VA streamline refinance loan allows veterans that already have VA mortgages to achieve better mortgage rates. The VA does not have a specifically designated home equity loan but provides a cash-out refinance loan that can provide similar assistance. The wide range of VA loans is designed to cater to different needs while promoting homeownership. Additional information regarding whether it’s your first or subsequent time receiving funding as well as the amount of your down payment will also be taken into consideration.
Veterans using a VA-backed loan for the first time may be charged lower fees compared to repeat borrowers. It’s common to have different funding fees with down payments of 5% or lower. First-time and repeat borrowers will face similar fees when using down payments of 5% and above.
The U.S. Department of Veterans Affairs makes the funding fee equal to a percentage of your total loan as seen on the charts proudly displayed on their website. Below is a simpler table designed to highlight possible funding fees based on one specific VA-backed loan. It’s possible to receive a funding fee refund.
VA-BACKED CONSTRUCTION LOANS
| Down Payment | Potential VA Funding Fee | |
| First-time | Below 5% | 2.3% |
| Not First-time | Below 5% | 3.6% |
VA Loan Funding Fee Exemptions
VA loan funding fee exemptions apply to veterans receiving VA compensation for a service-related disability and select veterans currently not receiving but eligible to receive VA compensation for a service-related disability. Funding exemptions apply to surviving spouses receiving Dependency and Indemnity Compensation (DIC) and select service members.
Service members exempt from paying the VA funding fee include service members who received a proposed or memorandum rating before the set date for loan closing. Active duty service members who show evidence of receiving a Purple Heart before or on the selected loan closing date are also exempt.
VA Funding Fee vs. Mortgage Insurance
A VA funding fee is a one-time fee typically paid by most individuals receiving a VA home loan. VA loans do not require individuals to have private mortgage insurance (PMI).
How to Pay the Fee
The process of paying the VA funding fee is straightforward. Veterans can pay the fee at the time of closing or roll the funding fee within the loan so that it’s paid off over time.
How to Successfully Navigate the VA Funding Fee
The VA funding fee might seem daunting given its unfamiliar nature, but with the proper guidance, veterans can successfully learn how to navigate the fee. Speak with a capable lender to understand the funding fee while researching if you are eligible for an exemption. When preparing to close on a home loan, knowledge is power, so be sure to have a strong team on your side.
Frequently Asked Questions
How to deduct the VA funding fee on taxes?
The VA funding fee can be deductible using tax form 1098 and answer box five. Speak with a tax professional.
Do all lenders charge VA funding fees?
Lenders typically have little control over the VA funding fees. Your Certificate of Eligibility (COE) indicates if you will be charged.
Who is the VA funding fee paid to?
Individuals pay the fee to the U.S. Department of Veterans Affairs.