VA home loan programs offer 100 percent home financing with no mortgage insurance; instead, borrowers pay a va loan funding fee. In addition, VA regulations limit how much borrowers can be charged for VA loans. Loan fees are limited to:
- "Reasonable and customary" amounts for any or all of the "Itemized Fees and Charges" designated by VA
- A one percent flat charge by the lender
- "Reasonable "discount points.
Special provisions apply to VA loans made for construction, alteration, improvement, and home repair. Whenever a charge relates to services performed by a third party, the amount paid by the borrower is limited to the actual amount charged by the third party.
In addition to loan fees and third party charges, borrowers of VA loans are also charged for prepaid items. These costs aren't directly related to VA home loans, but they are costs associated with owning a home. Examples of prepaid costs include property taxes and homeowners insurance. You'll also prepay some of your mortgage interest – how much you pay depends on the time of month in which you close.
VA Loan Funding Fee: What, How Much and Exemptions
The VA funding fee is paid by borrowers of VA home loans to help defray the cost of VA home loan programs to taxpayers.
The amount of the VA funding fee varies by loan applicants' military status and applicants' previous use of the VA home loan benefit if applicable. The VA also grants exemptions from paying the VA loan funding fee if applicants meet any of the following conditions:
- Receive VA compensation for service-connected disabilities.
- Would be entitled to service-connected disability pay if you did not receive retirement pay.
- Are rated by VA as eligible to receive compensation for a pre-discharge disability.
- Are entitled to receive compensation but not presently in receipt because you're on active duty.
- Are the surviving spouse of a veterans who died in service or from service-connected disabilities.
Funding Fees Based on Military Status, Down Payment and Prior Use of VA Home Loan Programs
Here is a schedule of VA loan funding fees that will be in effect until September 30, 2017:
The VA home loan funding fee is calculated as a percentage of the loan amount and is based on type of military service, down payment amount and whether the home loan benefit is used for the first time or subsequently.
- Regular Military No down payment First-time use 2.15% subsequent use 3.30%*
- Regular Military 5% or more down payment first-time use 1.50% subsequent use 1.50%
- Regular Military 10% or more down payment first time use 1.25% subsequent use 1.25%.
- Reserves or National Guard no down payment first-time use 2.40% subsequent use 3.30%*
- Reserves or National Guard 5% or more down payment first-time use 1.75% subsequent use 1.75%
- Reserves or National Guard 10% or more down payment first tiime use 1.50% subsequent use 1.50%
*The higher subsequent use fee does not apply to these types of loans if the veteran's only prior use of entitlement was for a manufactured home loan.
VA Funding Fee Varies for Miscellaneous Loan Types
The VA loan funding fees varies for each of the following types of loans but is the same same regardless of military type or whether first or subsequent use of the borrowers VA home loan benefit:
- Interest rate reduction refinance loans (IRRRLs ) .50%,
- Manufactured Home Loans (NOT permanently affixed) to a foundation) 1.00%
- Loan Assumptions .50%
- There are no discounts for cash-out refinances; the funding fees are the same as for home purchase loans. Higher subsequent use fees do not apply if the veteran's only previous use of his or her home loan entitlement was for the purchase of a manufactured home.
It's important to note that, while the government restricts lender fees to one percent of your loan amount and third-party fees to "reasonable" amounts, it does not dictate mortgage rates. Lenders price their VA mortgages independently, which means that prospective borrowers need to compare quotes from several lenders to ffind their best dealls on VA loans.