Funding fees were introduced in 1966 to reduce the cost to the taxpayer when a borrower defaults on their VA loan. Now they are paid to the Department of Veterans Affairs to ensure VA loans are still available to our future heroes.
When you obtain a VA mortgage, you will typically pay a VA funding fee that goes to the government. Since the VA funding fee is never higher than 3.6% of the loan amount, it’s a welcome change from a 10% or higher down payment on a conventional mortgage, or even from adding mortgage insurance to your monthly payment, which VA loans often do not require.
The funding fee is limited to VA mortgages. This means you will only have to pay it if you are taking advantage of a VA loan program as a veteran, active-service member, or their surviving spouse. Not every VA borrower will be required to pay the funding fee.
If you’re applying for a VA home loan, your VA certificate of eligibility will clearly indicate whether you have to pay the VA funding fee. Not all eligible applicants will have to pay the full amount, and many will not have to pay at all.
Veterans determined by the VA to have a disability rating of 10% or higher are exempt from the funding fee. Surviving spouses of veterans who lost their lives in the line of duty, or otherwise receive an Indemnity Compensation from the V.A. and are also exempt from paying the VA funding fee.
Active-duty service members historically pay the lowest funding fees, followed by National Reservists and members of the National Guard. Exact VA home loan funding fees will vary from borrower to borrower. This will depend on how the VA mortgage is used, as well as the duration of your service and any prior usage of your VA loan benefits.
The U.S. Department of Veterans Affairs last updated funding fee requirements in January 2022. The highest VA funding fee is 3.6% of your loan amount, which you will pay if you have already used your VA loan benefits to purchase a home. The lowest is 1.4% of the total loan amount, usually only available to those making a down payment.
You may elect to pay your VA funding fee in full at closing, or you may choose to pay the fee as part of your monthly payment once you have the keys. Either way you will pay the VA fee to the lender, who will immediately notify the Department of Veterans Affairs when your payment or closing is processed.
If you’re seeking more information on the VA loan funding fee, or further clarification on the payment of VA funding fees, you’re welcome to contact us at 877-788-3520 or check our VA resources. Our team of VA lending specialists, many of them veterans themselves, will be pleased to help you navigate the process of obtaining a VA mortgage for your new home.
Subject to credit approval. Terms and conditions may apply. Property insurance is required for all loans secured by property.