If you use your VA benefit, you will pay a funding fee. This is the only charge that the VA charges. Unlike the FHA or USDA program, the VA doesn’t charge any mortgage insurance or other monthly fees. You only pay your standard principal, interest, real estate taxes, and homeowner’s insurance in your payment.
Typically, veterans pay a flat funding fee at the closing, but there are certain veterans that pay a different fee. Keep reading to learn which fee you may have to pay.
The Types of Service
The VA breaks up the funding fee by type of service. In other words, they break it up between ‘regular military members’ and ‘Reserves/National Guard Members.’ The regular military members pay the lower fee while the Reserves/National Guard Members pay more.
Typically, a member of the regular military pays 2.15% of the loan amount as a funding fee. This is if they put 0-4.9% down on the home. If a regular military member makes a down payment between 5% – 9.9%, they pay a reduced fee of 1.5% and if they make a down payment of 10% or more, they pay 1.25% of the loan amount.
Members of the National Guard or Reserves pay a slightly higher funding fee of 2.4% of the loan amount if they put 0% – 4.9% down on the home. These members pay 1.75% of the loan amount if they put down between 5% and 9.9% of the loan amount and 1.5%, if they put down 10% or more.
The Veterans That Don’t Pay a Funding Fee
There are two exceptions regarding the funding fee. If you are either of the following, you may be exempt from the fee:
- You were injured while on active duty and receive disability pay from the VA
- You are a surviving spouse of a veteran that lost their life during their line of duty or as a result of the time on duty
You will have to have proof from the VA of your exemption, though. This means you’ll need proof that you are disabled. If the VA didn’t assign a disability rating to you by the time you close on your loan, you may have to pay the funding fee according to the schedule above. If you receive your disability rating after you close, the VA will reimburse you the fee that you paid. If you paid it at the closing in cash, they will issue you a check. If you paid it within your loan amount, they will credit the principal balance of your loan.
You May Roll the Fee Into Your Loan
If you don’t have the cash to pay the funding fee at the closing, you may be able to wrap it into your loan amount. Just be careful if you do this, as it will increase your loan amount. This means your monthly mortgage payments will be higher. Make sure that it’s a payment that you can comfortably afford.
Because you roll the amount into your loan, you pay interest on it for the life of the loan. That 2.15% fee will become a much costlier fee because of the interest you’ll pay on the money that you borrow. If you truly don’t have it, though, and you can afford the higher payment, it’s a viable option.
The Funding Fee on the VA IRRRL
The only other funding fee that you might pay is on the VA IRRRL program. This streamline refinance program allows you to refinance your VA loan into another VA loan with a lower interest rate or better terms. You don’t have to verify very much information to get this loan and it will only cost you 0.5% of your loan amount rather than 2.15% of your loan amount.
While you do pay a funding fee every time you take out a VA loan, it’s the only fee the VA charges. Whether you are buying a home or refinancing your loan, you will pay the fee. It’s best if you pay it at the closing in cash, but if you can’t, wrapping it into your loan amount is an option.