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It's common knowledge among vets, active duty service members and their families that the Department of Veterans Affairs offers VA home loans. What's not so common knowledge is how the government pays for it and how VA borrowers contribute to the program.
The VA loan is partly paid for by federal tax dollars and by users of the program through the VA funding fee.
One of the first questions a VA mortgage applicant asks after learning about the VA funding fee is, "How much is it?"
There is no one-size-fits-all answer or flat rate when it comes to VA funding fee amounts. The fee is a percentage that varies on if the borrower has a down payment or has used the VA loan before. Additionally, the borrower may not even need to pay the VA funding fee.
The VA funding fee is 2.3% of the loan amount for first-time users of the VA loan. Subsequent VA loan uses are typically 3.6%. However, the VA funding fee can decrease depending on if you utilize a down payment.
If you're utilizing the VA Streamline refinance (IRRRL), the funding fee is .5%. The VA cash-out refinance follows purchase requirements at 2.3% or 3.6%, depending on prior use.
Here's what the VA funding fee looks like when you have a down payment:
| - | Down Payment | Funding Fee |
|---|---|---|
| First Use | None | 2.3% |
| - | 5% or greater | 1.65% |
| - | 10% or greater | 1.4% |
| Subsequent Use | None | 3.6% |
| - | 5% or greater | 1.65% |
| - | 10% or greater | 1.4% |
Not everyone is required to pay the VA funding fee.
Veterans injured during service are exempt from paying the VA funding fee if they receive disability compensation or have a disability rating of 10% or higher. Surviving spouses of Veterans who died in the line of duty also qualify for a funding fee exemption.
As of January 1, 2020, Purple Heart recipients also qualify to receive a VA funding fee exemption when obtaining a VA home loan.
Here's the complete list of those exempt from the VA funding fee:
Remember, the VA has the last word on who is exempt, and some issues may be dealt with on a case-by-case basis. If you have any doubts, ask your local VA rep to review your service records (or your spouse's records) to get a determination from the VA.
The existence of these situations that exempt the borrower from paying the VA funding fee isn't enough. The VA requires the following documentation and paperwork:
Your lender can help walk you through this process. Once the VA receives the paperwork and approves the exemption, the lender is then notified of your exempt status.
In some cases, a borrower has a disability claim pending and won't automatically receive the exempt status on their Certificate of Eligibility.
If that's the case, expect to pay the VA funding fee at closing. However, once the disability claim status is cleared as exempt, the borrower can recoup the VA funding fee by contacting their original lender or servicer. You can also speak with your Regional VA Loan Center to start the process.
