With a few exceptions, all Veterans getting a VA Home Loan are required to pay a the VA’s funding fee. The funding fee is calculated as a percentage of the loan amount. The amount varies based on the borrower’s military experience, loan type, using it for the first or subsequent time, and the amount of down payment (zero or greater). The VA funding fee may be financed or paid in cash at the time of closing on the home.
The VA funding fee may be waived if the applicant meets on of the following:
- Veteran receiving VA compensation for a service-connected disability, OR
- Veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay, OR
- Surviving spouse of a Veteran who died in service or from a service-connected disability
A regular Military Veteran pays a lower VA funding fee rate compared to National Guard and Reserve Veterans. Visit the VA’s funding fee chart to see how loan type, service type, down payment, and first time -vs- subsequent use impact the percentage charged.
The Funding Fee is Not the Only Loan Cost
There are many costs that go into the funding of a mortgage loan. Those costs come from several different sources – some public and some private.
A mortgage lender presents the loan costs to the borrower in a disclosure called a Lending Estimate (LE). The “closing costs” presented in the LE are not solely from the lender, but usually include costs from a title company, an appraiser, state and local taxes, a home owners association (if any), county recording fees, etc.
When purchasing a home your real estate agent may negotiate in the purchase contract a seller’s concession to go towards the payment of the closing costs. This concession are funds taken from the seller’s proceeds and paid towards your closing costs. So, basically the seller of the property is paying part of the buyer’s closing costs. In this scenario, the VA will allow a seller to pay a concession of up to 4% of the loan. However, the seller’s concession may only be applied to certain closing costs including: payment of pre-paid closing costs, VA funding fee, payoff of credit balances or judgments for the Veteran, and funds for temporary “buydowns.”
The VA funding fee may financed in the mortgage loan, however, depending on the market value of the home this may result in the borrower owing more than the home is actually worth.