What is the VA Funding Fee?
Many veterans (VA) are interested in getting a VA loan, but they’re confused about the terms. This is common, so rest assured that you’re not alone. Luckily, there are a lot of resources out there to help you understand various loan options and terms, including the VA funding fee. While you may be exempt from the VA funding fee, it’s still important to understand what it is and how it works.
The VA funding fee is the associated cost that you’re charged when you get a VA loan. For the most part, VA loans are paid for by both the government and tax dollars. The VA funding fee is there to offset the loan cost. By charging this fee, VA loans can continue to waive the down payment and monthly mortgage insurance costs. The VA funding fee is paid to the Department of Veteran’s Affairs.
There are some situations in which the VA doesn’t charge the VA funding fee. People who are a minimum of 10% disabled are often exempt from the VA funding fee. You may be exempt if you meet any of the following requirements:
• You get VA disability.
• You’re eligible for VA disability, but instead collect retirement benefits.
• You’re eligible for VA disability due to a pre-discharge test and rating.
• You’re eligible for VA disability, but you’ve either re-enlisted or been called back to active duty.
• You’re a surviving spouse of a VA who died either in service or due to service-related disabilities.
Note that even if you meet the criteria above, you won’t automatically get VA funding fee exemption status. You have to apply in order to claim the VA funding fee exemption. In order to prove your VA funding fee exemption, you’ll need at least one of the following forms:
• Signed VA Form 26-8937.
• Copy of the VA notification that shows your disability rating.
• Retirement income documentation.
• Certificate of Eligibility, which shows that the borrower is entitled to the VA funding fee exemption, if the borrower is a surviving spouse.
If you’re not exempt from the VA funding fee, it’s important to understand that the VA funding fee will vary depending on the loan and other circumstances. The cost of the VA funding fee depends on several factors, including the down payment on the loan and military status. Typically, the VA funding fee is approximately 2.15% of the loan. For second-time users, the fee may be higher, usually around 3.3 percent. The reason the fee is higher the second time is because the VA has already used one loan and is assumed to have had time to save money for a down payment. The more of a downpayment there is on the loan, the lower the fee is.
The VA funding fee won’t need to be paid separately; instead, it’s included in the total loan amount. If you’d like to refinance an existing VA loan, you’ll only have to pay a .5 percent VA funding fee. At closing, you’ll be required to pay the loan in full. You can either pay it by refinancing or with cash.