The VA Funding Fee is an essential component of the VA Home Loan Program, aimed at reducing the loan's cost to U.S. taxpayers while making homeownership affordable for veterans and active-duty service members. Here's a breakdown of how it works, including the recent reductions effective from April 7, 2023.
What is the VA Funding Fee?
The VA Funding Fee is a one-time fee paid directly to the Department of Veterans Affairs. This fee helps offset the costs of the program to taxpayers and ensures the VA Home Loan Program's continuation for future generations of military personnel.
How Does It Work?
The VA Funding Fee varies depending on several factors:
- Loan Type: The fee is different for purchase, construction, and cash-out refinance loans.
- Down Payment: The amount of down payment can significantly impact the funding fee percentage.
- Usage: First-time users of VA loans and subsequent users are subjected to different fee percentages.
Recent Reductions in VA Funding Fees:
Effective from April 7, 2023, the VA has reduced the funding fees for loans made to purchase or construct a dwelling. The reduction depends on the down payment amount, mortgage type, and whether you've used a VA loan before.
Funding Fee Breakdown:
- No Down Payment:
- First-time buyers: 2.15%
- Repeat buyers: up to 3.3%
- Down Payment of 5% to 9.9%:
- Funding fee: 1.5%
- Down Payment of 10% or more:
- Funding fee: 1.25%
Payment and Exemptions:
The funding fee can either be paid upfront at closing or financed into the loan amount. For instance, on a $300,000 loan with a funding fee of $6,450 (calculated at 2.15% for first use with less than 5% down payment), the total loan amount would be $306,450.
Moreover, certain individuals are exempt from paying the VA Funding Fee, including those receiving VA compensation for a service-connected disability or eligible to receive it, the surviving spouse of a Veteran receiving Dependency and Indemnity Compensation (DIC), and service members who have received a Purple Heart.
Takeaway:
The reduction in VA Funding Fees in 2023 further accentuates the benefit of the VA Home Loan Program, making homeownership more accessible for our veterans and active-duty service members. Whether you're buying, building, or refinancing, understanding the VA Funding Fee and its recent changes is crucial to maximizing the benefits of your VA loan.