VA Funding Fee 2023
What You Should Know
- VA Funding Fee is mortgage insurance that is paid towards VA loan products such as mortgage loans, refinances, and other types of loans.
- VA Funding Fee for VA mortgage loans consists of a single upfront payment, and it ranges from 1.4% to 3.6% depending on the down payment amount.
- Some veterans and servicemen may be exempt from paying the VA Funding Fee mainly when they have a combat-related disability or an award such as Purple Heart.
- VA Funding Fee may be paid in full at closing, it can be rolled into the loan principal, or it can be passed to the seller as long as they agree to pay for it.
VA Loan Funding Fee
VA loan is a unique type of mortgage loan that may be issued or backed by the US Department of Veteran Affairs. VA loans have attractive interest rates, eligibility requirements, and loan conditions, but not all borrowers may be eligible for this type of mortgage. Some of the benefits of VA loans include no down payment requirement and no minimum credit score requirement as well as a relatively low interest rate. The most important distinction between VA loans and conventional loans is the fact that only eligible veterans and servicemen may qualify for the loan. In addition to that, VA loan borrowers must pay VA Funding Fee that works as mortgage insurance for VA loans.
The Department of Veteran Affairs may provide loans to some borrowers directly as well as work together with private lenders to issue VA loans indirectly. When VA loans are issued by private lenders, the Department of Veteran Affairs plays the role of a mortgage insurance provider. Mortgage insurance is common protection required by most government-backed loans as well as some conventional loans that have a loan-to-value (LTV) ratio of more than 80%.
Mortgage Insurance Chart
| Type of Fee | Type of Mortgage Loan | |||
|---|---|---|---|---|
| VA Loan | FHA Loan | USDA Loan | Conventional Loan | |
| Upfront Fee | 0.50% - 3.60% | 1.75% | 1.00% | 0% |
| Annual Fee | 0% | 0.45% - 1.05% | 0.35% | 0.50% - 2.00% |
The mortgage insurance for VA loans is called VA Funding Fee, and it is much cheaper than mortgage insurance for other types of loans, such as private mortgage insurance for conventional loans. VA Funding Fee may vary depending on the down payment a borrower chooses to contribute as well as the number of times the borrower has taken a VA loan. It does not depend on the credit history or other risk factors of a borrower, unlike private mortgage insurance which is used for conventional loans.
What Is a VA Funding Fee?
VA Funding Fee is the mortgage insurance that is required for most VA loans regardless of the risk factors associated with a particular VA loan. This fee is used to fund the VA Loan program and lower the cost of the program on the US taxpayers. This program provides cheap and reliable mortgage options for eligible borrowers, and VA Funding Fee helps the Department of Veteran Affairs run the program.
How Much Is the VA Funding Fee?
VA Funding Fee consists of an upfront fee that may range from 1.4% to 3.6% of the original principal amount. It is important to note that unlike other types of mortgage insurance, VA Funding Fee does not have any annual charges, which makes it relatively cheap. The following table provides VA Funding Fee rates for veterans, active-duty service members, and National Guard and Reserve members who are buying a house for the first time.
VA Funding Fee Chart
| Down Payment | VA Funding Fee Rate for | |
|---|---|---|
| First-Time Home Buyers | Returning Home Buyers | |
| Less Than 5% | 2.30% | 3.60% |
| From 5% to 10% | 1.65% | 1.65% |
| 10% or More | 1.40% | 1.40% |
The Department of Veteran Affairs does not simply provide a first-time home buyer program . Instead, they provide multiple programs that may be fit for first-time home buyers as well as people who have bought a property using a VA loan before. The following table provides VA Funding Fee rates for veterans, active-duty service members, and National Guard and Reserve members who are buying a house after using VA loans before that. It is important to note that if the returning borrower has previously gotten a VA loan for a mobile or manufactured home, they would still be considered first-time home buyers.
VA Funding Fee Rates for Other VA Loan Programs
The Department of Veteran Affairs also provides other programs that are related to mortgage loans. Some of the most popular programs include VA cash-out refinance, VA Streamline Refinance (IRRRL), Native American Direct Loan (NADL), and others. Depending on the program requested, the rates may be fixed for all borrowers, or they may differ based on whether a borrower is a first-time homebuyer or not. The following table provides a summary of the VA Funding Fee rates for other programs offered by the Department of Veteran Affairs.
VA Funding Fee Chart for Other VA Programs
| VA Programs | Rates for First-Time Home Buyers | Rates for Everyone Else |
|---|---|---|
| VA Cash-Out Refinance | 2.3% | 3.6% |
| VA Streamline Refinance (IRRRL) | 0.5% | 0.5% |
| Manufactured Home Loans | 1% | 1% |
| Loan Assumptions | 0.5% | 0.5% |
| Vendee Loan | 2.25% | 2.25% |
| NADL Purchase | 1.25% | 1.25% |
| NADL Refinance | 0.5% | 0.5% |
VA Funding Fee Exemption Rules
VA Funding Fee allows the Department of Veteran Affairs to run their mortgage programs for eligible borrowers. Even though all VA loans require VA Funding Fee, some borrowers may be exempt from this fee. This means that some borrowers may be able to get a VA loan without paying VA Funding Fee, which may be a considerable amount in some cases. The following list of exemptions provides an overview of the cases when a borrower may be exempt from paying the VA Funding Fee.
- The borrower receives compensation for a service-related disability.
- The borrower is eligible to receive VA compensation for a service-related disability, but they choose to receive retirement or active-duty pay instead.
- The borrower is the surviving spouse of a veteran who deceased during the service, from a service-related disability, or who was fully disabled. In addition to that, they must be receiving Dependency and Indemnity Compensation (DIC).
- The borrower is a service member with a proposed or memorandum rating, before the loan closing date, saying that the service member is eligible to get compensation because of a pre-discharge claim.
- The borrower is a service member on active duty who before or on the loan closing date provides evidence of having received the Purple Heart award.
VA Funding Fee in 2022
VA Funding Fee is updated periodically. The last time, the VA Funding Fee update happened on January 1, 2020, and it was based on Public Law 116-23. Since then, there have been no updates regarding the VA Funding Fee. This means that VA Funding Fees are the same for the years 2021, 2022, and 2023. The following chart provides VA Funding Fee rates for the year 2022.
VA Funding Fee Chart 2022
| Down Payment | First-Time Home Buyer Rates | Returning Borrower Rates |
|---|---|---|
| Less than 5% | 2.30% | 3.60% |
| 5% or more | 1.65% | 1.65% |
| 10% or more | 1.40% | 1.40% |
Frequently Asked Questions
How to Pay for the VA Funding Fee?
The VA Funding Fee must be paid at the time of closing on a property, and it is included as a part of closing costs for buyers. This fee can be quite significant for some buyers depending on how much their property costs and what down payment they contribute, so it is important to understand how different payment options may affect the buyer’s financial situation. The following options are available for a buyer to cover VA Funding Fee:
- Pay in Full at the Time of Closing
This option implies that the buyer will pay the whole sum in full when they close on the property. It may be a good idea for people who have spare money to cover the cost because they will be able to finalize the deal and save money by avoiding extra interest payments.
- Finance the VA Funding Fee With the VA Loan
If a buyer does not have enough funds to cover VA Funding Fee at once, they can always consider rolling the fee into the mortgage principal. This way, the fee may be paid over the lifetime of the mortgage. It is important to note that this kind of financing will increase the original principal of the loan and may increase the interest rate on the whole loan. The buyer should expect to pay slightly higher monthly payments because of these increases.
- Ask a Seller to Pay for VA Funding Fee
In some markets where a buyer has more power than a seller, the buyer may ask the seller to cover a part of their closing costs. This way the buyer may be able to avoid paying for VA Funding Fee completely. On the other hand, it may not work with sellers who have multiple offers on their property. A seller may decline this offer if they think it is unfair.
Who Is Eligible for VA Funding Fee Refund?
If a borrower who is exempt from paying the VA Funding Fee at the time of closing on the house accidentally pays the fee, they may be able to request a refund for it. It is important to note that a borrower who was not exempt from paying the fee and who gets exempt shortly after closing may not be eligible for the refund. The refund is offered only for people who were supposed to be exempt from the fee at the time of closing. If a borrower believes that they may be eligible for the refund, they should talk to their lender or contact VA Regional Loan Center at 1-877-827-3702.