A Guide to Understanding VA Funding Fee

VA home loan in Texas and other parts of the U.S. are offered to American veterans or their surviving spouses. These loans are guaranteed by the US Department of Veteran Affairs and come with several benefits such as zero down payment, lower than usual interest rates, and no prepayment penalty. While most of the closing costs can can be paid by the seller, veteran borrowers are required to pay the VA funding fee, a onetime fee, out of their pocket. Veteran borrowers may also get this fee rolled into their loan account. If you are on active duty or a retired veteran, and are thinking of obtaining a VA home loan in Texas, you must know about the VA funding fee.

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Defining VA Funding Fee

VA funding fee is charged to lower the taxpayer’s burden and cover any losses that may arise due to the borrowers defaulting. The fee is paid directly to the VA and helps them continue providing benefits such as zero down payment to borrowers. Funding fee is a percentage of the loan amount and depends on many factors such as your military category, and whether you are buying your first home or a subsequent property. You can either choose to pay the VA funding fee upfront in cash or request the lender to roll this cost into your loan amount.

The Fee Amount

To be eligible for a  VA loan you do not have to provide down payment, however, paying some amount upfront helps and can lower the quantum of VA funding fee, which is 2.15 percent of the total amount for borrowers with no down payment. You can lower this to 1.5 percent by paying a down payment of  5 to 9 percent of the loan amount. If you have more cash at your disposal, pay 10 percent of the loan amount or more, which would help bring the VA funding fee down further to around 1.25 percent. Borrowers with a previous VA loan are required to pay 3.3 percent of the loan amount as VA funding fee.

Exemptions

Qualified veterans with a service related disability are exempt from paying VA funding fee. Surviving spouses of veterans who died in the line of duty, or due to a service-connected injury or disability can also apply for this benefit. Eligible borrowers need to apply for this exemption and must mail documents such as Certificate of Eligibility, a copy of the VA notification of disability rating, signed VA Form 26-8937, and documentation of retirement income received to the VA.

Conclusion

VA funding fee is one of the major costs associated with getting a VA home loan in Texas. When applying for a loan, ask your lender about the VA funding fee. The good news is that you can ask the lender to roll the cost in your loan amount, which makes owning your dream home affordable. That said, you must also remember that this will increase your monthly payment obligation.

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