The VA funding fee helps the VA continue to provide this flexible loan program to our veterans. Because the VA loan does not require a down payment and does not charge any mortgage insurance fees throughout the life of the loan, the VA depends on the funding fee to continue doing business. This fee also helps to reduce the burden on our taxpayers who help to make this program available to those that serve our country.
Who Pays the Funding Fee?
In general, every VA borrower pays a funding fee, but there are a few exceptions. If you meet any of the following categories, you could be exempt from paying the fee:
- Any veterans injured during service and that receive compensation for the service-connected disability do not have to pay the funding fee
- Any retired veterans that suffered a disability during service that receive retirement compensation but would be entitled to disability payments do not have to pay a funding fee
- Any surviving spouse left behind after a service-related death by a veteran does not have to pay a funding fee
If you do not meet one of the above categories, you will pay the fee upfront every time you take out a VA loan.
Breaking down the VA Funding Fee
Now that you know you have to pay the VA funding fee, there is a difference in what you pay. The amount the VA charges you varies based on your circumstances:
- If you put less than 5% down on the home (there is never a required down payment) and you never used your VA entitlement before, the fee equals 2.15% of the loan amount for veterans and 2.4% for those in the National Guard
- If you put between 5% and 10% down on the home and you never used your VA entitlement before, the fee equals 1.5% of the loan amount for veterans and 1.75% for those in the National Guard
- If you put 10% or more down on the home and you never used your VA entitlement, the fee equals 1.25% for veterans and 1.5% for those in the National Guard
If you already used your entitlement once, your VA funding fee will differ. The only way you can reuse the entitlement is if you sold the home you used to originally use your entitlement. The exception to the rule is if you have entitlement left, meaning that the home you originally purchased did not use up your entire allotment for entitlement. The subsequent use fees are as follows:
- Down payments of less than 5% require a subsequent funding fee equal to 3.3% of the loan amount for veterans and those in the National Guard
- Down payments between 5 and 10 percent require a subsequent funding fee equal to 1.5% for veterans and 1.75% for those in the National Guard
- Down payments of 10% or more require a subsequent funding fee equal to 1.25% for veterans and 1.5% for those in the National Guard
Refinancing your VA Loan
Another exception to the rule for the VA funding fee is for those that take part in the VA IRRRL program. This program, known as the Interest Rate Reduction Refinance Loan Program, enables veterans to lower their interest rate or lower the risk of their loan with very few requirements. Borrowers do not need an appraisal, to verify their income, or to verify their credit score in order to qualify. As long as you lower your payment and you made your last 12-months of mortgage payments on time (one 30-day late maximum is allowed), then you will qualify. These borrowers pay a VA funding fee equal to 0.5% of the loan amount regardless of whether they served in the regular military or in the Reserves.
One common factor no matter how much you put down on the home or how many times you used your entitlement is the fact that you can roll your funding fee into the loan. The VA does not count this against your LTV, either – everyone is able to roll into their loan amount if they cannot afford to pay it up front.
The VA funding fee is one of the lowest fees charged on any government-backed loan. The fact that you can roll it into your loan makes it even more affordable, giving you access to flexible financing for your home.