Most veterans pay a funding fee. It’s just a part of doing business with the VA. The fee you pay goes directly to the VA. It helps them continue to guarantee loans for veterans with no down payment. Without the fee, the loans would put a larger tax burden on citizens. It would also make it harder for the VA to have such lenient guidelines.
The fee is a percentage of your loan amount. Just how much of a percentage depends on the type of military service you did and the type of loan you take out.
Keep reading to see how much you’ll pay on your VA loan.
Regular Military Service Borrowers
Borrowers that served in the regular military, meaning not the Reserves or National Guard have one set of fees. Generally, it’s 2.15% of the amount you borrow. However, how many times you’ve used the VA loan benefit and the amount of your down payment vary what you owe.
In general, VA loans don’t require a down payment. This doesn’t mean you can’t put one down, though. If you do, it’ll alter how much you owe for the funding fee.
If you don’t put a down payment down and this is your first time using your VA benefit, you’ll pay the typical 2.15% of the loan amount. However, if you have used your VA benefit before, you’ll pay 3.3% of the loan amount for the benefit with no down payment.
If you put between 5 and 10% down on the home, you can reduce the amount you owe for the funding fee. Whether it’s your first time using the benefit or a subsequent use, you’ll pay 1.5% of the loan amount.
It’s a similar case if you put 10% or more down on the home. You’ll pay 1.25% as a funding fee whether you used your benefit before or not.
Reserves and National Guard Borrowers
Borrowers that served in the Reserves or National Guard are subject to different fees. They also must serve more time before they are eligible for benefits. Borrowers that serve in the regular military must serve 90 during wartime or 181 days during peacetime. Borrowers in the National Guard or Reserves must serve at least 6 years before they can get VA benefits.
Once you meet the time requirements, you’ll pay the following VA funding fee:
If you don’t make a down payment, you’ll pay 2.4% for the funding fee the first time you use your benefit. Any subsequent uses with no down payment will cost you 3.3% of the loan amount.
If you put between 5 and 10% down on the home, you’ll pay 1.75% of the loan amount whether it’s your first or subsequent use of your benefits. The same is true if you put 10% or more down on the home. You’ll pay 1.5% no matter how many times you’ve used your benefit.
How the Loan Type Matters
There’s yet another distinction to make when determining your funding fee. The type of loan you take out makes a difference. The above examples are for purchases. If you refinance, you’re subjected to different fees.
Any borrower, no matter their service, pays 0.5% of the loan amount for the streamline refinance program. The program is called the VA IRRRL and stands for the VA Interest Rate Reduction Refinance Loan. Veterans can refinance a current VA loan into another one with a lower interest rate. This program requires very little verification in order to qualify.
The VA only requires that you verify your housing payment history to qualify for this loan. If you have timely payments on the higher loan payments, the VA assumes you can afford the lower payments on the new loan.
If you refinance and take cash out of the home, though, it’s a cash-out refi and it costs more. In this case you’ll pay:
- Regular military – 2.15% for the first use and 3.3% for subsequent uses
- Reserves or National Guard – 2.4% for the first use and 3.3% for subsequent uses
Borrowers Exempt From the Funding Fee
There are certain borrowers that are exempt from paying the funding fee at all. Exempt borrowers are those that meet the following:
- Veterans receiving disability payments from the VA for a service-connected disability
- Veterans eligible for disability payments from the VA but who don’t receive them because they receive retirement payments
- Surviving spouses of veterans that died in service
Some borrowers are in the midst of obtaining their disability rating when they apply for a VA loan. If you don’t receive your rating before you close on the loan, you will owe the funding fee. You can then apply for a refund once you receive your disability rating, though.
The VA funding fee does add to the cost of the VA loan, but it helps you get a loan with such flexible guidelines. It’s one of the few programs that allow borrowers to take out a loan with no down payment. If you can’t afford the funding fee, you can wrap it into your loan amount. As long as the VA receives payment at the closing from you or the lender, the loan can close as scheduled.