The VA funding fee is a necessary part of the VA loan process. The fee goes directly to the VA to maintain the VA loan program for future generations of Veteran homebuyers.
According to the VA, nearly two-thirds of all VA loan borrowers pay the VA funding fee. Veterans in the one-third exempt from paying include those receiving VA disability, spouses and Purple Heart recipients.
However, if you're in the majority and required to pay the VA funding fee, you may want to know exactly how you pay. Below we break down your options and primary considerations for paying the VA funding fee.
Veterans required to pay the VA funding fee can roll the funding fee into their VA loan and pay it over the life of the mortgage. Financing the VA funding fee is typically the most common scenario among VA borrowers.
The typical follow-up question is often: Can I roll closing costs into my VA loan? The VA funding fee is the only closing cost you can roll into your VA loan. Borrowers must pay all other costs at closing or negotiate with the seller to cover these expenses.
The next option to pay the VA funding fee is paying out of pocket.
Veterans who choose to pay out of pocket should keep in mind they can lower the VA funding fee with a down payment. However, the minimum down payment to reduce the VA funding fee is 5%.
For example, on a $250,000 mortgage, a first-time user of the VA loan typically pays 2.3% or $5,750 in this case. If that Veteran puts 5% down, their funding fee drops to 1.65%, which equals $4,125 here. However, 5% down here is $12,500, which is a steep cost for Veterans hoping to save only a little over $1,500 on the VA funding fee.
The last option is to request the seller to pay the VA funding fee on your behalf. The current housing market lends this to be an unlikely option for many Veterans. However, it's always worth asking when negotiating.
Veterans with a pending VA disability claim will still need to pay the VA funding fee. However, if your disability claim gets approved after
closing, you can seek to get a VA funding fee refund.
The VA has the final say on if you qualify for a VA funding fee refund. However, you can start that process by contacting your original lender or servicer. For other questions around the VA funding fee, how to pay, if you're required to pay or more, we've compiled the top 10 VA lenders. It's a great starting point when finding a lender who knows VA loans.