The VA home loan program offers numerous benefits to eligible veterans, active-duty service members, and some surviving spouses. One aspect that potential borrowers often question is the VA home loan funding fee. Understanding this fee and exploring ways to save can make a significant difference in your home-buying experience.
What is a VA Home Loan Funding Fee?
The VA home loan funding fee is a one-time charge for obtaining a VA loan. It helps sustain the VA loan program, enabling it to remain beneficial for future borrowers. The amount of the funding fee varies based on several factors, including the size of the down payment and whether it is your first time using a VA loan.
Funding Fee Amounts
The funding fee is typically expressed as a percentage of the loan amount. For most first-time buyers with no down payment, the fee is set at 2.3%. If you make a down payment of 5% or more, this percentage reduces to 1.65%. For subsequent use of a VA loan, the fees are slightly higher, starting at 3.6% with no down payment. Knowing these rates can help you calculate your total loan costs effectively.
Who is Exempt from the Funding Fee?
Some veterans are exempt from paying the funding fee entirely. This includes veterans who have a service-related disability, those who receive disability compensation, and the surviving spouses of veterans who died in the line of duty. If you believe you might qualify for an exemption, it is essential to provide the necessary documentation to your lender.
How to Save on VA Home Loan Funding Fees
1. Make a Down Payment: One of the simplest ways to reduce your funding fee is to make a down payment. Even a small down payment can lead to considerable savings, reducing the percentage you pay.
2. Obtain an Exemption: As mentioned earlier, if you qualify as an exempt veteran, ensure you submit your documentation. This can save you significantly compared to the standard fee.
3. Shop Around: Different lenders may offer various deals related to VA loans. Compare offers to find one that provides the best terms for your situation, potentially allowing you to negotiate on the funding fee.
4. Roll the Fee Into Your Loan: If you are unable to pay the funding fee upfront, consider rolling it into your total loan amount. It increases your mortgage balance, but it allows you to finance your home without immediate out-of-pocket expenses.
5. Consider Timing: The funding fee is subject to annual changes. If you are researching and planning for a VA home loan, keep an eye on potential decreases in funding fees or advantages that may come with new policies.
Conclusion
Understanding the VA home loan funding fee is crucial for veterans and service members looking to buy a home. By knowing the fee details, potential exemptions, and savings options, you can navigate the VA loan process more efficiently and secure a favorable deal for your new home.
