What is the VA Funding Fee?

What Is the VA Funding Fee and How Much Will It Cost You?            

Veterans Administration (VA) home mortgage loans can offer competitive interest rates, no down payment, and no private mortgage insurance. But they do require a VA funding fee¹ whether you are purchasing a home or refinancing. This is a one-time fee that can be paid upfront at closing or rolled into your total loan amount. It is charged to help cover the cost of borrower defaults. The fee is based on a percentage of your base loan amount, the type of loan, amount of your down payment and whether or not it’s your first time using a VA home loan. But there are certain circumstances when you won’t be required to pay the fee.

When You Don’t Pay a VA Funding Fee

You will not be required to pay the VA funding fee if you:

• Receive VA compensation for a service-connected disability, or
• Are eligible to receive VA compensation for a service-connected disability, but you’re receiving retirement or active-duty pay instead, or
• Are the surviving spouse of a veteran who died in service or from a service-connected disability, or who was totally disabled, and you're receiving Dependency and Indemnity Compensation (DIC), or
• Are a service member with a proposed or memorandum rating, before the loan closing date, saying you're eligible to get compensation because of a pre-discharge claim, or
• Are a service member on active duty who before or on the loan closing date provides evidence of having received the Purple Heart

If you’re awarded VA compensation for a service-related disability, retroactive to before your home closing date, you would be eligible for a refund of the VA funding fee.

Should You Pay the VA Funding Fee at Closing?

Depending on the amount of your loan, the VA funding fee can be substantial. You can choose to pay it upfront or you can roll the fee into your total loan amount, but that will raise your monthly payments and require you to pay more interest over the life of the loan.

Here’s an example:

Let’s say you want to borrow $250,000 at 3.5% interest with a zero down payment for a 30-year loan. Your monthly payment, not including taxes and insurance, would be $1,123.

The VA funding fee for a first time borrower would be 2.3% of the $250,000, totaling $5,750. If you roll that amount into your loan total, it will increase your monthly payment to $1,148. It will also boost the cost in interest by more than $3,500 over the life of the loan.

How Much Will Your VA Funding Fee Cost?

Your funding fee will be based on the type of loan you want (purchase vs. refinance), and the total amount of your loan. It will also be based on whether it’s your first time using a VA home loan benefit, and the amount of your down payment. See below for the 2021 VA funding fee rate charts, expressed as a percentage of the total loan amount, not the purchase price of your new home.

VA-Backed Purchase and Construction Loans

Rates for Veterans, active-duty service members, and National Guard and Reserve members

Note: If you only used a VA-backed or VA direct home loan to purchase a manufactured home in the past, you will still be required to pay the first-time funding fee.

VA-Backed Cash-Out Refinancing Loans

Rates for Veterans, active-duty service members, and National Guard and Reserve members

Note: The VA funding fee rates for refinancing loans don’t change based on your down payment amount. If you used a VA-backed or VA direct home loan to purchase a manufactured home, you only need to pay the first-time use funding fee.

Interest Rate Reduction Loans

Note: The VA funding fee rates for these loans don’t change based on your down payment amount or whether you’ve used the VA home loan program in the past.

Keep in mind there will be other closing costs in addition to the VA funding fee and the amount of interest the lender charges.

Would you like to learn more about how to buy a new home or refinance with a VA loan? Turn to the  loan team at NewDay USA. We are a nationwide VA mortgage lender who has been helping active military personnel, veterans, and their families achieve their financial and housing goals for over 20 years. Call us today at 800-405-4187 to learn more about any of our VA home loan products.

¹ https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/