If you’re an active-duty service member or veteran, you’ve probably heard about the amazing benefits the VA Loan offers.
With no down payment, zero private mortgage insurance, and flexible credit score requirements, it’s the most affordable home loan for the military.
However, you may be going through the VA Loan Journey with a lender and discovered there’s a VA Funding Fee at closing. Or you could be doing research to prepare for a VA Loan and are frustrated at paying the fee.
We want to encourage you that VA Funding Fees are not what you think at first. Even with this closing cost, the VA Home Loan still ranks as the top financing option on the market.
Our VA mortgage lenders will explain more about VA Funding Fees and an experienced lender secret that will minimize the price.
And we want to show how you may be exempt from paying the cost and give you compensation as a service connected service member or spouse of a veteran who died in service.
What is the VA Funding Fee?
At first glance, you may see the VA Funding Fee as a hassle you have to pay at closing. It can feel counter-productive when you’re trying to purchase a dream home for as little as possible, especially if you’re on active duty.
The great news is that the VA Funding Fee turns out to be a means of protecting you and other military families in case of default with a home purchase.
Because of the Department of Veteran Affairs’ generous donations, they guarantee 25% of your loan. This means they will pay your lender a quarter of your total loan amount if it comes down to it.
You are channeling funds into this mutualistic cycle to help other military families in need when paying the VA Funding Fee. In turn, their extra closing cost serves you and your partner if something drastic occurs with your VA Loan.
In our perspective, we see the VA Funding Fee as a connection between service members and an extension of the United States military.
VA Funding Fee Payment Options
VA lenders (including Jimmy Vercellino and our military-run team) make the VA Funding Fee as painless as possible by providing various ways to pay it off. They find the best option for your family’s budget and take care of you from the application to closing.
Seller Pays
- Partner with your real estate agent to strike a deal with the seller. Your terms and agreements can read that the seller pays for closing costs, including the VA Funding Fee.
Roll into Loan Amount
- If you don’t have the money to pay for the VA Funding Fee, your experienced lender can add that amount to your home loan. Then, you can pay the cost during the life of the loan.
Pay Out-of-Pocket
- The solution to the VA Funding Fee can be as simple as paying it down in full. We recommend this option if you have the means since you’ll pay less in the end than rolling it into your VA Loan.
More Down Payment
- We’ll talk more about this solution down below. It’s an experienced lender trick designed to get you a lower VA Funding rate with less financial strain at closing.
VA Funding Fee Amounts for 2022
Our VA lenders collected the funding fee rates down below for your reference. They will inform you how much you’ll pay at closing so you can be prepared.
Regardless of which flexible payment option you choose, we recommend speaking to an experienced VA lender. They look at your VA Funding Fee in relation to the entire housing market and advise your decision personally.
For a first-time user, the VA Funding fee is typically 2.3% of the loan amount.
However, for a first time user that happens to be a Reservist or National Guard, the fee goes up slightly.
Anybody that has used a VA Home Loan more than once is considered a subsequent user and is subjected to a higher fee. For these Veterans using a VA Home Loan for a second time or more are required to pay a 3.6% fee.
The VA Funding Fee Amount depends mainly on your down payment, as follows:
| Down Payment | First-Time VA Loan Use | Subsequent VA Loan Use |
|---|---|---|
| No Down Payment | 2.3% | 3.6% |
| 5% or More | 1.65% | 1.65% |
| 10% or More | 1.4% | 1.4% |
VA Funding Fee First-Time Buyer Example
Let’s say you’re a young, active-duty couple purchasing your first home with the VA Loan. Congratulations! And we’ll imagine that you and your partner want to take advantage of a zero down payment to pay less upfront.
An experienced lender multiplies your total home loan amount by the first-time usage percent to give the VA Funding Fee. We’ll assume you’re stationed by a military base in California and are purchasing a home for $700,000.
$400,000 Loan Amount x 2.3% First-Time Use = $16,100 VA Funding Fee
Easy calculation, right? If you had a fantastic experience with the VA Loan and used your entitlement a second time, the lender would simply change the percentage.
$700,000 Loan Amount x 3.6% Subsequent Use = $25,200 VA Funding Fee
How to Reduce the VA Funding Fee
There are ways to reduce the VA Funding Fee or possibly not pay it at all.
To reduce the fee the Veteran has the option of putting anywhere from a 5%-10% down towards the purchase of their home.
- With as little as 5% down, the fee will be reduced to 1.65%.
- With 10% down the fee will be reduced to 1.4%.
As you can see the VA encourages Veterans to put money down towards the purchase of their home if they are able.
VA Funding Fee Exemption
As a qualified vet or active-duty service member, you may have right not to pay the VA Funding Fee. This means you will save thousands for the first use and every subsequent use after that.
The following service members have a VA Funding Fee exemption:
- Service Connected Disability
- Active-Duty with a Purple Heart
- Surviving Spouse of a Veteran
Keep in mind you must prove this to your lender in order for it to be waived. To do so, simply provide a copy of your VA service connected disability paperwork to the company originating your VA Home Loan to get the fee waived.
You can speak with an experienced lender that explains the specific nuances behind VA Funding Fee exceptions. Depending on your specific service status, disability rating, and more, you also have a chance to forego this closing cost.
Minimize Closing Costs with a VA Lender
No matter where you are in the VA Loan Journey, we understand you and your family’s desire to purchase your dream home at an affordable price.
We believe the VA Funding Fee is a beneficial closing cost that doesn’t have to stop your family from enjoying what it means to live in a free nation.
Because at the end of the day, the VA Loan is still the top home loan option for vets and active-duty service members.
Jimmy Vercellino and his military-run lending team can help you figure out whether you’re eligible. Then, they will walk you through the VA lending process step-by-step, giving you the service your family deserves.
Connect with our staff at VA Loans for Vets and even talk to Jimmy on the phone. Give us a call today at (602)-908-5849, or let our VA lenders give a personalized evaluation of your eligibility online.
