VA home loans are some of the most attractive mortgage types available in todayâ€™s market. Qualifying veteransÂ receiveÂ low interest rates and never have to pay mortgage insurance.
Considering these benefits, many assume the VA loan program is supported by taxpayer dollars. That is not the case.
Rather, a VA funding fee is included in most VA loans. The fee goes back into the program to make it self-sustaining and available for future veterans.
Many service membersÂ who apply for VA loans ask howÂ these fees are calculated and who pays them. Another important question is whether the fees are due in cash up front.
Fortunately, the veteran does not have toÂ pay the fee in cash. Still, understanding the VA funding fee is important.
Many veterans realize that, even with the fee, VA home loans are typically the most economical loan type with whichÂ to buy or refinance a home.Click to see today's rates (Jan 24th, 2017)
The fees are based on a percentage of the loan amount. It's not always the same percentage. Fees for home buying range from 1.25 percent and 3.3 percent of the loan amount, and the fee to refinance can vary even more widely.
Several factors determine the size of the VA funding fee.
Some veterans are exempt from paying a funding fee for any VA home loan. Tell your lender if you are receiving VA compensationÂ for a service-connected disability.
Most veterans will pay a 2.15 percent funding fee when buying a home. This is equal to $2,150 for every $100,000 borrowed.
This fee amount applies to the most popular type of veteran and loan: regular military veterans who make no downpayment.
Other fee amounts for active and retired regular military are as follows.
Veterans who use a VA loan more than once will pay the higher VA funding fee of 3.3 percent, unless they put down at least 5 percent. With a higher down payment, the funding fee will match first-time use rates.
Veterans of the Reserves or National Guard pay slightly higher fees when buying a home.
Reserves and National Guard veterans will pay a 3.3% funding fee for their second VA loan, unless they make a downpayment of 5% or more.Click to see today's rates (Jan 24th, 2017)
For cash-out refinances, the VA loan program charges a different, higher set of fees. Unlike purchase and construction loans, on a refinance the size of the down payment does not affect the fee.
Regular military veterans pay 2.15 percent the first time they use the VA loan program for a cash-out refinance and 3.3 percent after that. Reserves and National Guard veterans pay 2.4 percent the first time and 3.3 percent thereafter.
These higher fees do not apply for VA streamline refinances, a loan in which the veteran already has a VA loan and is reducing his rate and payment.
In all such cases, the funding fee is just 0.5% of the new loan amount.
For twoÂ other types of loans, the type of veteran doesn't matter. Loans for manufactured homes have fees of 1 percent. A veteran who assumes a VA loan will pay just 0.5 percent.
VA construction loans fees match those of first-time purchase loans for all types of veteransÂ and downpayment amounts.
Not all veterans have to pay funding fees for VA loans. For instance, a disabled veteran who is receiving compensation fromÂ the VA for a service-connected disability is exempt.
So are veterans who would be compensated by the VA for a service-related disability if they weren't already getting retirement benefits or being paid for active duty.
Another funding-fee-exempt group are spouses of veterans who died while on duty or from a disability connected to their service.
Exempt status will most likely be confirmed on the veteranâ€™s Certificate of Eligibility (COE), a document the lender requests from VA to prove the veteran is eligible for a VA loan.
The VA funding fee is paid when the loan is completed. It is not due when you apply for the loan or at any prior stage of the process.
You have some choices about how to pay. You can pay all or part of it in cash. However, most veterans choose to include it in their loan amount.
Rolling it into the loan eliminates the need for additional cash at closing.
TheÂ seller can pay this fee as well as some other fees, including closing costs like appraisal, title, and loan origination fees.
The total of all fees paid by the seller, including funding fees, cannot exceed four percent of the total loan amount. If the funding fee is 2.15 percent, that uses up over half of the allowed amount of seller-paid closing costs. Still it could be a wise choice to have the seller pay the fee for you.Click to see today's rates (Jan 24th, 2017)
The current guidelines for VA funding fees were set in 2011 so they apply to any VA loans after that date.
Funding fees were scheduled to be reconsidered and perhaps changed onÂ September 30, 2016.
However, current funding fees have been extended untilÂ 2024 according to a source at the VA Office of Corporate Communications.
This is good news for militaryÂ home buyers who are still a few years away from buying a home. Funding fees will be the same forÂ them as for current VA loan applicants.
The VA loan guaranty program gives qualifying veterans access to affordable mortgage loans on attractive terms.
The fees that VA borrowers pay help keep this program financially healthy and available to all veterans.
Understanding how these fees are calculated and who has to pay them can help veteran homebuyers make informed decisions about funding the purchase of a home.
Current VA rates are lower than those of conventional loans. Requiring no private mortgage insurance is also an important advantage to VA loans.
Check todayâ€™s low VA rates and see if you are eligible. Get a quote from an approved lender with no obligation to continue and very little information needed to get started.Click to see today's rates (Jan 24th, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)