VA Funding Fee: What You Need to Know
The VA funding fee is a one-time fee that borrowers pay when they take out a VA loan. The fee helps to offset the cost of the VA loan program, which offers competitive interest rates and more flexible terms than traditional mortgages.
Why is There a VA Funding Fee?
The VA funding fee is necessary to support the VA loan program. Unlike conventional loans, VA loans are backed by the government. This means that if a borrower defaults on their VA loan, the VA will reimburse the lender for a portion of their losses. This guarantee reduces the risk for lenders, allowing them to offer more favorable terms to veterans and service members.
How Much is the Funding Fee?
The VA funding fee is calculated as a percentage of the loan amount. The amount of the fee varies depending on the type of service, down payment amount, and whether it’s the borrower’s first VA loan. Keep in mind the VA updates these numbers regularly, and plan to double-check these numbers with me when applying for your VA loan.
- First-time use with no down payment: 2.15% of the loan amount
- First-time use with at least 5% down payment: 1.5% of the loan amount
- Subsequent use with no down payment: 3.3% of the loan amount
How Can You Avoid Paying the Funding Fee?
There are some circumstances in which borrowers may be exempt from paying the VA funding fee. These include:
- Veterans who receive compensation for service-connected disabilities
- Veterans who are entitled to receive compensation but instead receive retirement or active-duty pay
- Surviving spouses of veterans who died in service or from service-connected disabilities
How to get a VA Funding Fee Refund
There are a few circumstances in which you may be eligible for a refund of the VA funding fee. These include:
- You were later awarded VA compensation for a service-connected disability. The effective date of your VA compensation must be retroactive to before the date of your loan closing.
- You were a service member who received a proposed or memorandum rating before the loan closing date that said you were eligible to get compensation because of a pre-discharge claim.
- You were a service member who was discharged for a service-connected disability after your loan closed.
- You were a surviving spouse of a veteran who died from a service-connected disability after your loan closed.
To apply for a VA funding fee refund, you will need to contact your VA Regional Loan Center. You will need to provide documentation to support your claim, such as your Certificate of Eligibility, your VA compensation award letter, or your discharge papers.
The VA will review your claim and make a decision within 10 business days. If your claim is approved, you will receive a refund of the VA funding fee that you paid.
Here are some additional tips for getting a VA funding fee refund:
- Apply as soon as possible. The VA has a three-year limit on funding fee refunds.
- Gather all of the required documentation. This will help to speed up the process.
- Be patient. The VA may take some time to process your claim.
Final Thoughts
The VA funding fee is an important part of the VA loan program. While it is an additional cost to consider, the benefits of VA loans often outweigh the fee. VA loans offer lower interest rates, more flexible credit requirements, and the possibility of purchasing a home with no down payment.
If you are a veteran or active-duty service member considering a VA loan, be sure to factor in the funding fee when making your decision. You can also check with me, your VA loan specialist, for further information about VA loans and how to get into your new home.