Understanding the VA Funding Fee for Your Mortgage
- The VA funding fee represents a small percentage of your loan. Learn more about this expense, which is paid along with the closing costs for a VA mortgage.
The VA funding fee is one of the costs associated with obtaining a mortgage through the Department of Veterans Affairs. A no-down payment home loan from the VA is available for eligible military members, veterans and spouses.
How Much Is the VA Funding Fee?
If you have a down payment of less than 5%, you must pay a VA funding fee of 2.3% of the loan amount as a first-time borrower. In other words, if you want to buy a $300,000 home with no down payment, your funding fee is $6,900. If you've used the VA program to buy a home before, you must pay a funding fee of 3.6%.
You can make a down payment of 5% to 10% to reduce the funding fee to 1.65% of your mortgage amount ($4,950 in the above example). With a down payment of 10% or higher, you would pay a funding fee of 1.4%, or $4,200 for the example loan.
Why Does the VA Charge a Funding Fee?
The funding fee is similar to the private mortgage insurance you would have to pay if you make a down payment of less than 20% on a conventional home loan. The VA guarantees these mortgages, which means it repays the lender some of the money you owe if you default on the loan. The funding fee covers some of the cost of these borrower defaults.
Do You Have to Pay the VA Funding Fee Upfront?
Most lenders include the VA funding fee in your closing costs. You may pay the closing costs up front in a lump sum at the loan closing or decide to roll them into your loan, which will increase your monthly payment. Some home buyers negotiate seller assistance for all or part of their closing costs. Under VA regulations, seller assistance for closing costs cannot exceed 4% of the loan amount ($12,000 for a $300,000 mortgage, for example).
Does Every Borrower Have to Pay the VA Funding Fee?
You might qualify for an exemption, which means you do not have to pay the funding fee. Eligible individuals include:
- Purple Heart recipients
- Surviving spouses who qualify for the VA home loan program
- Service members or veterans who receive payment for a service-related disability or have an eligible disability but receive active service or retirement pay
Check the Certificate of Eligibility for your VA loan to see if you might have an exemption for the funding fee.