In this blog, we will discuss and cover the VA funding fee mortgage guidelines for VA home loans. VA loans are the best loan program for owner-occupant primary home financing in the United States. One of the greatest benefits for homebuyers who have served in the U.S. Armed Services is the benefit of being eligible for VA loans. VA loans are originated, processed, underwritten, funded, and serviced by private mortgage companies. Only eligible active-duty and/or retired members of the U.S. Military with a certificate of eligibility are eligible to qualify for VA loans. VA loans do not require any down payment on home purchases. VA mortgages have the lowest rates of any other loan program. This holds true with no down payment required. Lenders are able to offer the best mortgage rates and terms on VA loans due to the government guarantee. There is no mortgage insurance required on VA loans. There is no longer a maximum VA loan limit on VA loans starting January 1st, 2020. However, the VA requires a one-time VA Funding Fee on all VA loans. There are new VA Guidelines on the Funding Fee on VA loans starting January 1st, 2020.
Benefits Of VA Loans For Eligible Borrowers
Not all active and/or retired members of the U.S. Armed Forces are eligible for VA mortgages. Only eligible active-duty and/or retired members with a certificate of eligibility (COE) are qualified for VA loans. The VA does not originate, process, underwrite, fund, nor services VA loans. Private lenders originate, process, underwrite, fund, and service VA home loans. The VA will insure and partially guarantee VA loans that go into default to lenders. In order for the VA to insure and/or guarantee defaulted VA loans, lenders need to follow the VA guidelines on all VA loans they originate and fund.
What Benefits Do I Get With A VA Loan?
VA home loans are the best loan program to purchase, refinance, and/or build a new home. This is mainly due to no down payment required and low mortgage rates. Another great benefit of VA loans is there is no maximum loan limit effective on January 1st, 2019. Whether the homebuyer wants to purchase a $400,000 home or a $1 million dollar home does not matter since there is no longer a maximum VA loan limit on VA mortgages.
Funding Fee Changes Beginning 2020
Effective January 1, 2020, the funding fee schedules will be changing for the first time in many years. Many veteran borrowers may benefit from the 2020 Funding Fee changes on VA mortgages. The changes are part of The Blue Water Navy Vietnam Act Of 2019, which is a bill signed by President Donald Trump earlier this year to help veterans. This bill signed into law will greatly benefit disabled and struggling veterans of our military.
The Blue Water Navy Vietnam Act of 2019 will be funded by the increase in the VA Funding Fee that will go into effect on January 1st, 2020.
What Is The Funding Fee On VA Loans
The funding fees on VA loans are charged to borrowers.
- The fee is paid to the Veterans Administration to cover the costs from the loss of defaulted loans due to foreclosures
- The fee is similar to mortgage insurance
- The VA has one of the lowest foreclosure rates of any other loan program
- Borrowers pay a one-time funding fee versus an annual mortgage insurance premium on VA loans
The funding fee is financed and added to the loan balance.
VA Loan Funding Fee Chart
Mike Gracz of Gustan Cho Associates and VA origination expert said the following:
With an up-front charge ranging from .50% – 3.6%, this could significantly affect a VA borrower’s pocketbook. Luckily, VA allows the funding fee to be added on top of the base loan. For instance, a first time VA buyer in the Navy with no money down on a $200,000 purchase price, would borrow $204,600. $200,000 plus adding 2.30% funding fee ($4,600) results in the total $204,600 loan amount. Unless directed, this fee is automatically added on top. But, VA will allow the Veteran or the seller to pay all or a portion of the funding fee. Thus, it may not be necessary to finance it.
Read the chart below:
Funding Fee Comparison For Regular Military, National Guard, and Reservists
The structure of the funding fee is based on the type of military service. Prior to 2020, the fee is less for qualified first-time user members of the reserves and National Guard than the new fee starting on January 1st, 2020. Regular members of the U.S. Armed Services had to pay 2.15%. Other members had to pay 2.4%. Effective January 1st, 2020, all members will pay the same fee as noted in the above chart.
VA Funding Fee Exemption
Dale Elenteny of Gustan Cho Associates is another expert on VA Loans. Dale said the following about eligible veterans who are exempt from paying the funding fee on VA mortgages:
As discussed, VA loans come with a funding fee of some level depending on the scenario. While VA loans are an amazing home loan option, it gets even better for a well-deserved group. Historically, military Veterans who are considered 10% or more disabled by VA receive a funding fee exemption. That means it is not charged which saves anywhere from .50% to 3.60% of the loan amount in fees. That’s huge! Yet, another deserving group is exempt from the VA fee that starts January 1, 2020. Effective 1/1/20, the VA funding fee is waived for those serving on active duty and provide a certificate or military orders which show the Purple Heart award. Later, VA will offer more clarification of documentation allowed as well as the process for obtaining the certificate of eligibility showing exemption. So, if you are active military and have been awarded the Purple Heart, ask about a VA funding fee waiver.
Many counties exempt property taxes for disabled veterans. However, the homebuyer needs to purchase the home and apply for property tax exemption after they close on their VA loans.
Qualifying For VA Home Loans With A Lender With No Overlays
Gustan Cho Associates has a national reputation of having no lender overlays on VA loans. Borrowers who need to qualify for a VA loan with a lender with no overlays, 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. There are no minimum credit score requirements and no maximum debt to income ratio caps on VA loans.
