Veterans who qualify for the VA home loan program not only receive low-interest rates but also never have to pay for mortgage insurance. This is done to ensure that they do not experience any financial burden. As to the source of the money, it does not exactly come from taxpayer dollars. There is a component known as VA funding fee included in most VA loans. The charge is essential as it goes back into the system to make the program self-sustaining for future veterans. Most of members who apply for VA loans are not aware of fee calculation, loan rates, payments, exemptions, and various other factors. This blog clears the air on all these matters.
Criteria for VA Funding Fee
The VA funding fee is primarily calculated as a percentage of the loan amount, which is not always same. Therefore, the charge for home buyers ranges between 1.25 percent and 3.3 percent of the loan amount. This variation in the percentage forces the refinance fee to vary widely for different loans. The variation is mainly because of several factors that determine the funding fee amount, including:
- Purpose of the loan
- Type of home
- Military experience of the veteran
- Down payment amount
How is the Fee Calculated?
The majority of the veterans opt for a regular military veteran loan wherein they don’t have to make any down payment. In such cases, the funding fee is calculated on 2.15 percent of the borrowed amount. The other options on which the refinance fee is calculated are:
- 1.5 percent funding fee for regular military veterans paying 5 percent as down payment amount.
- 1.25 percent funding fee for regular military veterans paying 10 percent down payment.
- 3.3 percent funding fee for regular military veterans availing a VA loan for the second time.
The higher fee for second time borrowers is only applicable for veterans who make a down payment of less than 5 percent. In case they make a higher down payment, the refinancing fee will be at par with first-timer rates.
Who is Exempted From Paying The VA Funding Fee?
Not all veterans availing VA loans have to pay a funding fee as some are excused from paying, including:
- Disabled veterans who are receiving compensation from the VA for service-connected disability.
- Veterans being compensated by the VA for service-related disability, in case they weren’t getting retirement benefits.
- Spouses of veterans who either died in the battle for their country or have disability from their years of service.
To avail the exemption, veterans seeking loans need to produce a Certificate of Eligibility (COE), which proves their eligibility for a VA loan.
Will the VA Funding Fee Change?
The current VA funding fee guidelines are valid on VA loans after 2011, as that’s when the rules were set. The funding fee is scheduled to be reconsidered on September 30, 2016. However, there are chances that the fee structure may remain unchanged for a few more years.
Even with the refinancing fee, VA home loans are an economical loan option to buy or refinance a home. Additionally, veterans do not have to pay the fee in cash. Current VA loan rates are lower than conventional loan rates. The exemption from the need for private mortgage insurance makes VA loans an attractive option. Check the latest VA loan rates along with eligibility criteria to access VA home loans.