Alex Carlucci The Mortgage Expert,
Publish On: January 11, 2024
In this blog, we will discuss and cover understanding the VA funding fee on VA loans. VA loans are the best home mortgage program in the United States. However, not everyone can qualify for VA loans. You need to be an active and/or retired member of the U.S. Military with a certificate of eligibility (COE). Due to the government guarantee of the Veterans Administration (VA), lenders can offer VA home loans with no down payment required and 100% financing.
Mortgage rates on VA loans are among the lowest out of any other home loan program. Even lower than conventional loans. There is no maximum loan limit on VA loans.
VA loans often allow borrowers to purchase a home with no down payment or a very low down payment. The VA restricts lenders’ fees and their maximum amounts. For example, there are limits on lender origination fees, appraisals, and other common closing costs. However, some costs, like escrow fees and prepaid items (prepaid are items such as property taxes and homeowner’s insurance), are not subject to these limits.
Understanding the VA Funding Fee on VA Loans
Sellers can contribute to the buyer’s closing costs on VA loans, which can further reduce the financial burden on the borrower at closing. The VA funding fee is a fee charged by the U.S. Department of Veterans Affairs (VA) to help cover the costs of the VA home loan program. It is a one-time, upfront fee that is typically rolled into the total loan amount rather than paid out of pocket.
The VA funding fee varies in amount based on several factors, including the type of VA loan, the size of the down payment (if any), and whether the borrower has used the VA loan benefit before.
In this section, we will cover are key points about understandingthe VA funding fee. The primary purpose of the VA funding fee is to help offset the cost of the VA loan program, which includes expenses like administrative and operational costs, default management, and other program-related expenses. This fee helps ensure that the VA loan program can continue to be available to eligible veterans and active-duty service members.
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Different Types of VA Loans
The amount of the VA funding fee varies depending on the type of VA loan. There are three main categories:
- Purchase Loans: These are used to buy a home. The funding fee amount can vary based on factors like the size of the down payment and whether it’s the borrower’s first VA loan.
- Cash-Out Refinance Loans: These loans allow borrowers to take out equity from their homes. The funding fee for cash-out refinances is typically higher than for purchase loans.
- Interest Rate Reduction Refinance Loans (IRRRL): Also known as a VA Streamline Refinance, these loans are used to refinance existing VA loans to obtain a lower interest rate. The funding fee for IRRRLs is lower than for purchase loans.
- Some VA loan programs, such as the Interest Rate Reduction Refinance Loan (IRRRL) or VA Streamline Refinance, may have reduced closing costs or a simplified closing process compared to traditional VA purchase loans.
One of the unique aspects of VA loans is the funding fee. This fee is a percentage of the loan amount and helps to offset the cost of the VA loan program. The amount of the VA funding fee is based on the longevity and type of service in the military, whether it’s your first time using a VA loan or the down payment amount. Typically, the funding fee can be rolled into the loan amount, so it doesn’t necessarily increase your out-of-pocket costs at closing.
Understanding the VA Funding Fee Amounts
The specific funding fee amounts can change over time, so it’s essential to check the current rates on the VA website or consult with a lender. Generally, funding fee rates can range from 1.4% to 3.6% of the loan amount, depending on the circumstances. Exemptions and Reduced Fees:
Some veterans and certain categories of military personnel may be eligible for exemptions or reduced funding fees. For example, veterans with service-related disabilities are often exempt from paying the funding fee.
Borrowers can choose to pay the funding fee upfront in cash or have it included in the loan amount. Including it in the loan amount will result in slightly higher monthly mortgage payments but doesn’t require an initial out-of-pocket payment. It’s essential to work with a qualified VA-approved lender or mortgage specialist who can provide you with accurate information about the VA funding fee, as well as other aspects of the VA loan program. The specific details and eligibility criteria can vary, so it’s important to get personalized guidance based on your unique situation.
Seller Contribution For Closing Costs on VA Loans
Most of our VA borrowers at Gustan Cho Associates do not have to pay closing costs out of their pockets. Closing costs are often covered with a seller concession by the home seller. In the event, that the borrower is short of closing costs with a seller’s concession, the mortgage company can give the borrower a lender credit in lieu of a higher mortgage rate to cover the shortage in closing costs.
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Closing Costs on VA Home Loans
The maximum amount of seller’s concession to the home buyer to homebuyers is a 4.0% seller’s concession to the homebuyer. VA loans do not have a mandatory mortgage insurance premium requirement. This holds true even with no down payment and 100% financing. However, the VA does require a one-time VA funding fee on all VA loans.
Understanding the VA funding fee on VA home loans is important. There is a chart on the amount the borrower is charged on the funding fee.
The funding fee can be rolled into the VA loans and does not have to come out of pocket. Gustan Cho Associates is a national mortgage company licensed in multiple states with no lender overlays on VA loans. In this article, we will discuss and cover Understanding The VA Funding Fee On VA Home Loans.
Understanding The VA Funding Fee Qualifying For a VA Loan
One of the greatest rewards and benefits earned by our members of the armed services is becoming eligible for VA loans. Only U.S. military members with a certificate of eligibility (COE) can qualify for a VA loan. The VA funding fee is a one-time fee that can be rolled into the VA loan balance. Frequently asked questions about the VA funding fee are the following:
- What is the VA funding fee?
- Who pays for the funding fee and how much is it?
- Why do certain borrowers get a discounted rate on the VA funding fee
It’s important to work closely with your lender to understand the specific closing costs associated with your VA loan. They should provide you with a Loan Estimate (LE) that details all the expected closing costs and fees. Review this document carefully and ask questions to ensure you understand the costs involved. Additionally, you can compare offers from different lenders to find the best deal and lowest closing costs for your VA loan. In this blog, we will discuss and explain all about understanding the VA funding fee.
Understanding The VA Funding Fee Explained
Instead of charging borrowers an annual mortgage insurance premium, the VA has a one-time VA funding fee to support the existence of VA loans. Borrowers are responsible to pay for the one-time VA funding fee. Speak With Our Loan Officer for VA Loans
VA Funding Fee Chart
Understanding The VA Funding Fee on VA home loans is important. Please study the VA funding fee chart below for 2024:
As mentioned earlier, VA loans are hands down the be home mortgage program in the U.S. The federal government created and launched VA loans as a reward for our men and women in uniform to thank them and their families for their service in protecting our country. Like any real estate transaction, closing costs can be negotiated between the buyer and the seller. It is possible to request that the seller pay a portion of the closing costs as part of your purchase agreement.
Lenders With No Overlays on VA Loans
To qualify for a VA loan with a mortgage lender with no lender overlays on government and conventional loans, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays. Closing costs on VA home loans can vary depending on several factors, including the lender, location, and the specific details of your loan. However, VA loans are known for having certain benefits that can help reduce closing costs for veterans and active-duty service members. Here are some key points to consider.
