Funding Fee (VA)

Definition

The Funding Fee for VA loans is a one-time fee that is required by the Department of Veterans Affairs (VA) for borrowers who receive a mortgage guaranteed by the VA. This fee helps to offset the cost of the VA loan program and enables the VA to continue offering these loans to future veterans. The fee amount can vary based on several factors, including the borrower’s military category, down payment amount, and whether it is a first or subsequent use of the VA loan entitlement.

Examples

Sergeant Sam’s Home Purchase:
- Sergeant Sam applies for a VA loan to buy a home. He doesn’t need to make a down payment or pay discount points, but he has to pay a funding fee of 2.15% of the loan amount. Sam decides to finance the fee into the loan.
Lieutenant Lily’s Refinancing:
- Lieutenant Lily wants to refinance her mortgage through the VA Interest Rate Reduction Refinance Loan (IRRRL) program. She incurs a funding fee of 0.5%, which can also be rolled into the new loan amount.

Frequently Asked Questions

What factors determine the VA funding fee amount?
- The funding fee is determined by the type of VA loan, the borrower’s military category, the size of the down payment, and whether this is the borrower’s first or subsequent use of the VA loan benefit.
Can the VA funding fee be financed?
- Yes, borrowers have the option to finance the VA funding fee within their loan, thus spreading the cost over the life of their mortgage.
Are there any exemptions to the VA funding fee?
- Veterans who receive compensation for service-connected disabilities, surviving spouses of veterans who died in service or from a service-connected disability, and certain others may be exempt from paying the VA funding fee.
How can I pay the VA funding fee?
- The funding fee can either be paid upfront at closing, or you can choose to include it in your total loan amount and finance it over the life of the mortgage.
Is the funding fee tax-deductible?
- The VA funding fee can be tax-deductible as part of your mortgage closing costs, but you should consult with a tax professional for specific advice related to your situation.

VA Loan: A mortgage loan in the United States guaranteed by the Department of Veterans Affairs, designed to offer long-term financing to eligible American veterans or their surviving spouses.
Down Payment: An upfront payment made by the buyer at the time of closing, often expressed as a percentage of the purchase price.
Discount Points: Fees paid directly to the lender at closing in exchange for a reduced interest rate.
Interest Rate Reduction Refinance Loan (IRRRL): A refinancing option offered by the VA that allows borrowers to refinance their existing VA loan to a lower interest rate with minimal paperwork and underwriting.

Online Resources

References

U.S. Department of Veterans Affairs. “VA Funding Fee Tables.” Available at: https://www.benefits.va.gov/HOMELOANS/documents/docs/funding_fee_table.pdf
Military.com. “What is the VA Funding Fee?” Available at: https://www.military.com/money/va-loans/what-is-the-va-funding-fee.html

Suggested Books for Further Studies

The Complete Guide to VA Home Loans by Rose Garrity
Zero Down: The VA Home Loan Guide for Veterans by Chris Birk

Real Estate Basics: Funding Fee (VA) Fundamentals Quiz

### What is a VA funding fee? - [ ] An extra charge to modernize the residential building - [ ] An additional interest rate charge on a VA loan - [x] A nominal fee charged by the VA for mortgage guarantees - [ ] A one-time maintenance fee for housing services > **Explanation:** The VA funding fee is a nominal fee charged by the Department of Veterans Affairs to borrowers for receiving a mortgage guaranteed by the VA. ### Can the VA funding fee be financed into the loan? - [x] Yes - [ ] No > **Explanation:** Borrowers have the option to finance the VA funding fee within their loan, spreading the cost over the life of their mortgage. ### Who is exempt from paying the VA funding fee? - [ ] All active-duty military personnel - [x] Veterans receiving compensation for service-connected disabilities - [ ] Borrowers making a down payment of at least 10% - [ ] First-time homebuyers only > **Explanation:** Veterans receiving compensation for service-connected disabilities, surviving spouses of veterans, and some others may be exempt from paying the VA funding fee. ### What type of loan might have a 0.5% funding fee? - [ ] First-time home purchase VA loan - [ ] Conventional home mortgage - [x] VA Interest Rate Reduction Refinance Loan (IRRRL) - [ ] Jumbo loan > **Explanation:** VA Interest Rate Reduction Refinance Loan (IRRRL) has a funding fee of 0.5%. ### Where can you verify the exact VA funding fee amount? - [ ] Local bank notices - [ ] Veterans Affairs TV advertisements - [x] VA.gov official website - [ ] Certified financial planners only > **Explanation:** The exact VA funding fee amount can be verified on the VA's official website, VA.gov, where up-to-date information and fee schedules are available. ### Do changes in the amount of the down payment influence the VA funding fee? - [x] Yes - [ ] No > **Explanation:** The VA funding fee amount can vary based on the size of the down payment, among other factors. ### Is the VA funding fee part of the closing cost that can be tax-deductible? - [x] Yes - [ ] No > **Explanation:** The VA funding fee can be tax-deductible as part of mortgage closing costs, though consultation with a tax professional is advised. ### What happens to the VA loan program without the funding fee? - [ ] It would cover more veterans. - [ ] Interest rates would naturally decrease. - [x] Funding of future VA loans might become constrained. - [ ] Surplus funds would be used for community housing projects. > **Explanation:** The funding fee helps fund the VA loan program, enabling it to continue offering these loans to future veterans. ### Is the funding fee higher for first-time or subsequent VA loan usage? - [ ] The same for both - [x] Generally higher for subsequent usage - [ ] Higher only if borrowing more than once a year - [ ] It fluctuates based on market conditions > **Explanation:** The funding fee is generally higher for subsequent use of the VA loan entitlement compared to the first-time use. ### Who sets the rates for the VA funding fee? - [ ] Individual lenders - [ ] Local government bodies - [x] Department of Veterans Affairs - [ ] Real estate agencies > **Explanation:** The rates for the VA funding fee are set by the Department of Veterans Affairs.