The VA Loan Funding Fee—Not The Same For All VA Loans
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One of the first things you learn about when exploring your VA loan options as a newcomer to your military benefits is the VA loan funding fee. This fee is required for all VA home loans (except where the borrower is exempt from paying it) and the fee is different for each borrower depending on the type of loan, the loan amount, the down payment you put on the VA loan if any, etc.
Why are the VA loan funding fees different depending on the type of loan you apply for?
New purchase and VA construction loans feature different fee structures than for VA Interest Rate Reduction Refinance Loans, Cash-Out Refinance loans, or certain types of mobile home purchases.
VA loan funding fees also vary depending on whether the borrower is, in the case of new purchase loans, putting a down payment of more than 5% or not. VA loan rules do not require a down payment in most cases unless the borrower is purchasing a home with an asking price higher than the appraised value.
But it’s to the borrower’s advantage to make a down payment because it lowers the amount of the funding fee. That lesser amount depends on how much money you put down and a minimum of 5% down is required to lower the fee. Speak to your loan officer or the VA directly about the rule in this area.
The VA loan funding fee is the lowest for Interest Rate Reduction Refinancing Loans and for VA Loan Assumptions. The reasons for this are fairly simple—in the case of the VA IRRRL the goal is to get the borrower into a lower mortgage payment or a lower interest rate. The funding fee may be included in the loan amount and having a lower fee helps home owners struggling to keep up with their mortgage payments and who need the IRRRL to get back on track.
VA loan funding fees must be paid up front. Borrowers who might be exempt from having to pay the VA loan funding fee but haven’t gotten official confirmation of that exemption from the VA must pay up front and apply for a refund later where applicable. How you pay the VA loan funding fee determines how you will be refunded the money. If you paid in cash, you will be refunded in cash. If you rolled the VA loan funding fee into your VA loan amount, the VA will not give you cash back—instead your loan will be credited by the amount you paid.
Talk to a loan officer or a VA representative about your VA loan funding fee options depending on your loan, your exempt status and whether or not you’re making a down payment.