VA loans come with great benefits for eligible active and retired military service members, in addition to their surviving spouses. Lenders prioritize these loans because they pose less risk compared to conventional loans. VA home buyers love them because they offer more lenient qualifications and more favorable terms. It’s a win-win.
While lower costs and fees are usually associated with VA loans, there is one fee VA home buyers are required to pay that is not a feature of conventional loans — the VA funding fee. Below we will look at how to calculate a VA funding fee based on your loan and what it covers.
What is the VA Funding Fee?
The VA funding fee is a one-time payment implemented by the Department of Veteran Affairs. The fee amount can fall anywhere between 1.4% and 3.6% of the purchase price. It is applied towards the VA loan entitlement program and is used to continue the portion of a loan guarantee backed by the VA. This fee aids in the continuance of this military benefit so other eligible service personnel are able to benefit from this program as future homeowners and support other veteran-centric programs.
How is the VA Funding Fee Calculated?
Depending on if you are buying a new home or refinancing on an existing home loan, your VA funding fee may vary. In most cases, for disabled veterans and surviving spouses, the fee is waived entirely. Otherwise, home buyers who are using the VA loan program for the first time who put down less than 5% on a down payment will pay a funding fee that amounts to 2.3% of the loan value. First-time VA loan home buyers who put down 5% or more will pay 1.65% of the loan amount and home buyers who put down 10% or more will pay 1.4% of the total loan amount. After a first VA loan, home buyers who put down less than 5% will pay 3.6% of the loan amount; 5% or more will pay 1.65% of the loan amount; and those who put down 10% or more will pay 1.4% of the total loan amount.
Additionally, a VA loan refinance will also require a funding fee. For veteran homeowners who choose a streamlined refinance option, also known as IRRRL, the funding fee total is 0.5% of the loan amount. A cash-out refinance option is also divided by first-time uses and subsequent uses. First-use borrowers will pay a funding fee of 2.3% and subsequent users will pay a fee of 3.6% of the total loan amount.
How is the Funding Fee Paid?
There are a few options available for veteran home buyers when it comes to paying for the VA funding fee. These are some options for home buyers who are looking for ways to incorporate this cost:
- Roll it into the total loan amount. Some military service home buyers are able to finance the fee by having it rolled into the total loan amount.
- Pay it upfront. Homebuyers enrolled in the VA loan program also have the option of paying it upfront along with closing costs, discount points, lender fees, inspection fees, appraisal fees, and more. Although this will be a significant upfront cost in the short term among a sea of potential fees and housing costs, those who are in a financial position to do so will be able to lower their monthly payments by lowering their interest rates. This will also allow the home buyer to pay off the total loan amount quicker by shortening the life on the loan.
- Have the seller pay for it. A wise man once said if you’re going to take out a loan, get someone else to pay for it. Although the funding fee is only a portion of the total loan amount, having the seller pay the funding fee has the potential to save you as a home buyer thousands of dollars. You will have to negotiate this concession with the seller to come to an agreement.
How Can The Home Loan Expert Help You?
Hero Loan, The Home Loan Expert’s VA Loan Program. A VA funding fee calculator is one tool that veteran home buyers can use when calculating an estimate on their expected monthly payments. We will ensure that veteran home buyers are able to make a sound personal financial decision with the details of their loan laid in front of them.
We believe giving back is the cornerstone of creating a thriving community, and we are proud to show our appreciation by supporting veteran-owned businesses and events. Our sponsorship of Fisher House Foundation, a project that gives back to veterans and their families by providing complimentary housing for military affiliates undergoing medical procedures, is just one example of our community outreach.
Our personalized, face-to-face approach ensures that our clients’ needs are seen and heard when it comes to finding a refinancing solution that will make monthly payments more manageable. Hero Loan’s professional and efficient services can help our clients qualify for a loan in less than five minutes, with closing periods in as little as 14 days. Thanks to our ability to streamline the underwriting process in-house, we are able to expedite the refinance process and take the hassle out of loan application paperwork.
Call us today at 800-991-6494 to speak with a VA loan representative who will gladly help you see how the VA funding fee fits into your overall monthly payments. You can also reach out to one of our friendly lending experts, through our application to discuss how the VA funding fee will impact your total loan costs.