Why Do I Have to Pay a VA Funding Fee on My New Home Loan?

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One aspect of the VA Home Loan program that servicemembers and veterans always have questions about is the VA funding fee. That’s understandable. You’ve probably heard quite a bit about some of the program’s outstanding benefits, but less about some of its nitty gritty details.

Here are four frequently asked questions veterans have about the VA funding fee:

What is the VA Funding Fee?

At first glance, you probably groaned at the thought of shelling out more money to pay for a house, but this fee is actually for a good cause, just hear us out. The VA funding fee goes directly to the U.S. Department of Veterans Affairs to help keep the home loan program running. While VA Home Loan defaults are rare, they do happen. The funding fee helps offset the VA and taxpayer’s losses in those events.

How much is it?

The amount you pay really depends on a variety of factors. If you were on active duty, you can expect to pay around 2.15 percent the first time you use your VA Home Loan benefits. After that you will have to pay around 3.3 percent. Reserves and National Guard can expect to pay 2.4 percent for first-time use, and 3.3 percent for every VA Home Loan after that. However, you can decrease the funding fee percentage rate if you put down at least five percent. If you choose to refinance, the funding fee is only .5 percent.

Do I have to come up with that money up front?

No! You are able to roll it into the loan and pay for it as you make your monthly mortgage payment. VA Home Loans do not require you to put down any cash up front.

Are there any exemptions?

The VA does make exceptions for disabled vets and surviving spouses of veterans who have passed away during service or from a service-connected disability. If you meet one of these criterias, you do not have to pay a funding fee. However, they do not automatically exempt you from the funding fee, you must provide proof that you meet the criteria and let the VA know you’d like to take advantage of the exemption. Usually your lender will be able to help you with this process.

Overall, the VA funding fee is a small price to pay to keep this wonderful program going. It breaks down the barriers many face when it comes to homeownership, and helps servicemembers and veterans all across the country provide loving homes for their families.



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