The funding fee is a necessary part of the VA home loan process. The fee is paid at closing and goes directly to the Dept. of Veterans Affairs to maintain the VA loan program for future generations of Veteran homebuyers. The VA home loan has been sustained for over 75 years with the help of the VA funding fee.
There are three primary ways to pay the VA funding fee:
However, many Veterans have questions regarding how to pay the funding fee and exemptions. Let’s break it down.
According to the VA, nearly two-thirds of all VA loan borrowers pay the VA funding fee. Veterans who are exempt from paying the fee usually include those eligible for receiving VA disability, spouses receiving Dependency and Indemnity Compensation (DIC) and Purple Heart recipients.
Yes, Veterans required to pay the VA funding fee can roll it 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: 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 for paying the VA funding fee is 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 $350,000 mortgage, a first-time user of the VA loan typically pays 2.15% or $7,525 in this case. If that Veteran puts 5% down, their funding fee drops to 1.5%, which equals $5,250. However, 5% down here is $17,500, 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 as an unlikely option for many Veterans. However, it's always worth asking when negotiating.
Veterans with a pending VA disability claim must still 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 about the VA funding fee, we've compiled the top 10 VA lenders. It's a great starting point when finding a lender who knows VA loans.