Veterans and military personnel who get a VA loan also get an abundance of benefits. One of the most popular benefits are the miniscule or lack of down payments. However, there is a small VA funding fee that’s required by law. The fee, paid by the borrower, is in place to reduce the cost of the VA home loan program to taxpayers.
Certain borrowers are exempt from paying the small VA funding fee. Veterans who receive compensation from the VA for a service-connected disability, or those entitled to such compensation for not receiving retirement pay are exempt. Spouses who survived a veteran who died in service or due to a service-connected injury need not pay the funding fee.
The VA funding fee gradually shrinks as the down payment increases. VA funding fee rates are in effect for loans closed before Oct. 1, 2011. For a VA loan with no down payment, the VA funding fee is 2.15 percent for veterans and active-duty personnel. Reserves and National Guard members’ fee for no down payment loans is 2.4 percent. Down payments between 5 and 10 percent require a VA funding of 1.5 percent and 1.75 percent for veterans and active-duty members, and Reserves or Guards members respectively. If a down payment is 10 percent or higher, the VA funding fee is 1.25 for veterans and active duty, and 1.5 for Reserves and Guard duty.
Subsequent uses of the VA home loan program change the required VA funding fee only for loans with no down payments. Repeat borrowers that close a loan with no down payment pay VA funding fees of 3.3 percent. This figure applies to all types of military borrowers.
VA loan refinancing options also come with VA funding fees. The VA Streamline, also called the interest rate reduction refinancing loan (IRRRL), has a fee of 0.5 percent. Cash-out refinancing loans for active duty and veterans come with a first-time funding of 2.15 percent, and 3.3 percent for subsequent cash-out users. Reserves and Guards members pay a fee of 2.4 percent for their first cash out, and 3.3 percent for repeat cash outs.
Photo thanks to athrasher under creative common license on Flickr.