Getting a VA loan may be the best way to purchase, refinance, or build a home. At least in cases where no down payment or equity is involved. Starting with closings after January 1, 2020, the VA funding fee chart changes for the first time in quite a while. Some changes are good and some changes are going to cost VA borrowers more. All of these changes are a part of The Blue Water Navy Vietnam Act of 2019 which is going to help a lot of struggling Vietnam Veterans. Although, this program is going to get financial help from an increase in the VA funding fee for certain VA transactions. Further down you will see the details in the 2020 VA funding fee chart.
Spoiler alert! Not just disabled Veterans may waive the VA funding fee!
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. Further down, you will see the VA funding fee chart which explains how each may affect the fee amount. So, how does the Veteran pay for this VA cost?
VA Funding Fee Financed
With an up-front charge ranging from .50% – 3.6%, this could significantly affect a VA borrower’s pocketbook. Luckily, VA allows the funding fee to be added on top of the base loan. 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.
But, VA will allow the Veteran or the seller to pay all or a portion of the VA funding fee. Thus, it may not be necessary to finance it.
New VA Funding Fee Chart January 1, 2020
|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%|
VA Funding Fee Comparison for Regular Military, National Guard, and Reservists
If you are familiar with the VA funding fee chart prior to 2020, you remember that there is a different fee structure based on the military type. Pre-2020, regular military paid a lower VA funding fee than those in the reserves or National Guard for first time use. Regular military have 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.
VA Funding Fee Exemption
As discussed, VA loans come with a VA funding fee of some level depending on the scenario. While VA loans are an amazing home loan option, it gets even better for a well deserved group. Historically, military Veterans who are considered 10% or more disabled by VA receive a VA funding fee exemption. That means it is not charged which saves 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 that starts January 1, 2020.
Effective 1/1/20, the VA funding fee is waived for those serving on active duty and provide a certificate or military orders which show the Purple Heart award. Later, VA will offer more clarification of documentation allowed as well as the process for obtaining the certificate of eligibility showing exemption. So, if you are active military and have been awarded the Purple Heart, ask about a VA funding fee waiver.