Buying a home with a VA home loan is a privilege earned by our military service members, but sometimes there’s confusion about the VA Funding Fee and how it works.
- What is the VA funding fee?
- How much is it?
- Who can cover the cost of the VA Funding Fee?
- Are there options to lower or get rid of this cost?
Before you begin your VA financing journey, we will help you get familiar with the VA Funding Fee’s purpose, amount, advantages, and possible exemptions.
What is a VA Funding Fee?
The funding fee is a cost charged to a VA loan borrower for two main reasons.
First, the fee helps offset the Veterans Administration costs and losses resulting from foreclosures. Basically, it lowers the cost to the taxpayer.
Secondly, a VA funding fee is a form of mortgage insurance. Rather than charging a monthly PMI, VA only has the one-time funding fee. The amount varies based on the number of uses, down payment percentage, and service category.
How Much Will The VA Funding Fee Cost?
The New VA Funding Fee Chart
At the beginning of 2020, the VA funding fee chart changed for the first time in quite a while. The changes result from The Blue Water Navy Vietnam Act of 2019. The program will receive financial support from an increase in the VA funding fee for certain VA transactions. For instance, prior to 2020, regular military paid a lower VA funding fee than those in the reserves or National Guard for first-time use. Regular military paid 2.15%, where others paid 2.4%. Although starting 1/1/2020, all military types pay the same thing as notated in the VA chart.
Below, you will see the details in the 2020 VA funding fee chart.
|Type of Loan||Down Payment||First Time Use Percentage||Subsequent Use Percentage|
|Purchase / Construction Loans||None||2.3%||3.6%|
|Purchase / Construction Loans||5%||1.65%||1.65%|
|Purchase / Construction Loans||10%||1.40%||1.40%|
|VA Cash Out Refinance||N/A||2.3%||3.6%|
|IRRRL Streamline Refinance||N/A||.50%||.50%|
|VA Loan Assumptions||N/A||.50%||.50%|
Using the VA Certificate of Eligibility to Determine the VA Funding Fee
VA lenders need to verify each of the characteristics above to figure the correct fee. That’s where the VA lender will request a borrower’s certificate of eligibility (COE). The COE provides lenders with valuable information to help structure the VA loan correctly for the borrower. Examples of information provided on the COE are the following:
- First or subsequent use
- Entitlement available/used
- Entitlement code
- VA Funding fee exempt or not
- If entitlement is tied up & how much
- Existing VA loan amounts
- Prior VA loss through foreclosure or short sale
- Service category – regular service or reserves/National Guard
How Is The VA Funding Fee Paid?
The VA Funding Fee can be paid by:
- Adding the funding fee on top of the base loan amount.
For instance, a first time VA buyer in the Navy with no money down on a $200,000 purchase price would borrow $204,600. $200,000 plus adding 2.30% funding fee ($4,600) results in the total $204,600 loan amount. Unless directed, this fee is automatically added on top.
- The borrower can choose to pay their funding fee at closing.
- A third party, such as the seller or home builder, can pay the fee or pay a portion.
VA Funding Fee Exemption
Historically, veterans considered 10% or more disabled by VA receive a VA funding fee exemption. That means the fee is not charged, saving the veteran anywhere from .50% to 3.60% of the loan amount in fees. That’s huge! Yet, another deserving group is exempt from the VA fee.
Effective 1/1/20, the VA funding fee waives for active duty Purple Heart recipients. So, if you are active military and have been awarded the Purple Heart, ask about a VA funding fee waiver.