BOULDER – VA loans are a wonderful option for those who have served or are presently serving in the military. Not only do they allow the purchase of a home without a down payment, but they don’t require monthly mortgage insurance, either. However, they do involve VA funding fees. So, what are these and why do they matter?
The VA funding fee
The VA funding fee is applied to the purchase of a home (as well as each refinance). While it’s required for most transactions, some veterans are exempt. The fee is waived for those who receive compensation for a service-related disability, for example. Spouses of those killed in combat (or whose death was a result of their service) are also exempt.
The fee is used to cover losses on any VA loans that go into default.
The cost of the fee
The cost of the VA funding fee varies based on several factors. One of the most important factors is the type of military service: regular military members pay lower funding fees than those who are in the Reserves or the National Guard (the present rate is 2.15% to 2.4%). Another factor is the down payment. While no down payment is required, making one of at least 5% lowers the VA funding fee.
Finally, the fee also varies based on how many times it’s used. Second-time users pay a slightly higher fee (3.3%), but only if they fail to make a down payment. The current fee schedule is the result of Public Law 112-56, a law that established the present rates.
When is the fee paid?
As mentioned above, one of the major benefits of a VA loan is the down payment: none is required. The VA funding fee, likewise, is not required to be paid as an upfront cost. The veteran doesn’t need to bring the money to closing; rather, it’s financed with the loan.
By Michaela Phillips, Guaranteed Rate, Inc. Michaela Phillips is the Vice President of Mortgage Lending at Guaranteed Rate, Inc. Contact Michaela at 303.579.5517, e-mail firstname.lastname@example.org or visit michaelaphillips.com. NMLS:312874.