VA loans don’t require a down payment yet even so they are still some of the highest performing loan group of all current home loan programs today. This not only in spite of the fact there is no initial “skin in the game” as some lenders put it. This fee is an upfront fee and paid at the settlement table but is not paid for out of pocket but rather rolled into the loan amount. The upfront funding fee can vary but for most VA loans the fee is set at 2.15% of the loan amount and included in the final loan and not paid for out of pocket.
This fee can change based on the type of borrower as well as in the event of any down payment. VA loans with a down payment are more rare, however. Let’s look at some of the scenarios and see what the funding fee would look like. VA loans are available to veterans of the military, National Guard, and Armed Forces Reserves. They’re also available to active duty personnel with at least 181 days of accumulated service. Spouses of veterans who have died while serving or as a result of a service related injury may also qualify.
For veterans and eligible active duty with no down payment, we mentioned the 2.15% fee. This is for someone using the VA loan for the first time. If the home is listed at $300,000, the funding fee is $6,450 and the final loan amount $306,450. The final loan amount is used to calculate monthly payments.
If that same individual decided to make a down payment of up to 10% of the sales price, the funding fee drops to 1.5% of the sales price, making the funding fee on the $300,000 home $4,500 and final loan amount of $304,500. A down payment of more than 10% and the fee drops slightly to 1.25%. It’s important to note here however that VA loans with a down payment such as 10% or more might be better served to consider a standard conventional loan. A conventional loan with a down payment of 20% or more doesn’t require the funding fee at all.
The VA loan program isn’t a one-time affair and can be used again to buy and finance another primary residence. The VA loan can be used again as long as the previous VA loan has been paid off, typically due to the sale of the property. There are what is referred to as “partial entitlements” when the original VA loan didn’t take up the entire entitlement amount but in today’s marketplace, this doesn’t happen very often.
When the VA loan is used once again and there is no down payment, the funding fee is higher at 3.3% of the sales price, or $9,900 on a $300,000 purchase for a final loan amount of $309,900. With a down payment of 5.0% or more, the funding fees remain the same at 1.5 and 1.25% of the sales price, the same as with a first time purchase.
Armed Forces Reserves and National Guard members with at least six years of service also qualify but the funding fee is a bit different. With no money down, these members will see a 2.4% funding fee. With a down payment of 5-10%, the funding fee is 1.75% and with a down payment of 10% or more, the fee is 1.5% of the sales price. Subsequent use will see a 3.3%, 1.75% and 1.5% respectively.
Note, these fees are for purchase transactions. When refinancing, the funding fee drops considerably to 0.5% of the loan amount. This is for the VA streamline refinance where no cash is taken out during the transaction. If the refinances includes cash out, the fee is higher. A first-time cash out refinance loan is at 2.15% for veterans and 2.4% for Reserves and Guard members and 3.3% for subsequent use.
Veterans with a listed disability do not pay a funding fee at all. This status is listed on your Certificate of Eligibility. It’s also possible that a veteran who has applied for disability status and not yet certified as such, first-time users will pay the 2.15% fee. In this instance, where the disability award letter is received after the VA loan has already closed, the veteran can apply for a refund. To help get your refund, contact the original lender who approved and funded your VA loan or if that’s not available contact your nearest Regional VA Loan Center for help. If you’re eligible for the refund, your lender will apply the refunded fee to reduce your loan balance by the proper amount. If you paid it in cash, which again is rare, you’ll get a cash refund.
Buyers that need have questions or need assistance can reach out to us by calling the number above.