VA Home Loan Funding Fees: What Buyers Should Know

Veterans, service members, and their spouses have an array of perks offered by the Office of Veteran's Affairs. Those who apply for a VA loan can potentially finance a mortgage with no down payment options and reduced interest costs. However, to continue to offer these benefits for years to come, the VA has what is known as a VA funding fee. Keep reading to find out what these fees entail and other vital things to consider about VA loans for home purchases.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

How Much is the Standard VA Funding Fee?

Generally, the VA loan funding fee is a one-time expense, typically 2.3% of the total loan amount for first-time borrowers. However, this amount increases to 3.6% for those who have previously utilized the VA loan program. This can be reduced somewhat for buyers who can put down a minimum of 5% at closing.

The means of calculating a precise VA funding fee will depend on a few factors, such as whether the benefit has been used before and whether there is a down payment made. Those with service-related disabilities may not have to pay a VA funding fee at all. Historically, Reservists and National Guard members used to pay a slightly higher funding fee than regular military members. However, the Blue Water Navy Vietnam Veterans Act of 2019 dictates that all branches pay an equal VA funding fee.

Funding Fees and VA Refinancing

Service members or veterans currently holding a VA loan have two refinancing options, both of which will require funding fees: the Cash-Out refinance and the Interest Rate Reduction Refinance Loan (IRRRL). Each of these options has a specific function, and VA funding fees will vary depending on the purpose of the loan.

IRRRL's are available to assist VA homeowners seeking to lower their current mortgage rates or get out from under an adjustable-rate loan. Unless one qualifies for an exemption, they will be required to pay a 0.5% funding fee. That being said, this fee is standard regardless of the member's service details or whether they have used the VA home loan previously.

The Cash-Out refinance fees are very similar to the standard VA purchase. Yet, borrowers under this program cannot lower funding fees by making a down payment or using existing equity. Fees can be waived under certain circumstances, which we'll cover now.

Situations When VA Funding Fees May Be Waived

Some official circumstances qualify veterans and service members for fee waiver status. There are three specific scenarios provided by the VA that may qualify some members for VA funding exemptions. The first scenario is when a veteran receives compensation from the organization for a service-connected disability.

Another situation that can allow members to pass on paying funding fees is when a veteran would be eligible for compensation related to a service-connected disability if they didn't receive active duty or retirement pay.

The third scenario was when a service member's surviving spouse died during their term of service or who passed from a service-related disability. The VA may also examine such requests for unusual situations that make them eligible for funding fee exemptions. Be sure to inquire with current VA representatives to find out if a situation can help you avoid funding fees.

Stay on Top of VA Home Loan Funding Fees

Staying in-the-know about loan qualification, down payments, funding fees, and closing costs can help you experience the full benefits of what a VA mortgage can do for you. Don't lose out on those benefits that have been earned by military service.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

Are you planning on buying a home in Colorado Springs? Contact Military Home Search online or call 719-338-7294 to speak to one of our military real estate specialists today!