Most VA Loan borrowers must pay a loan funding fee. Congress established the fee to help offset the cost of VA loans to taxpayers. The fee percentage depends on a few factors, and some borrowers are exempt from paying the fees. Congress made some changes to the law in 2019 and 2020.
Some of the factors include:
First Time Borrowers:
When the borrower puts no money down on the property purchase, first-time users of the VA Home Loan Benefit pay less than those who have used the benefit before. A first-timer who doesn't put a deposit down pays 2.30%, whereas a previous user who puts no money down pays 3.60%.
While you don’t have to put money down on the VA home loan to qualify, how much you put down as a deposit affects how much you pay for the fee. If you put 5% down, whether you are a first-time user or not, your rate goes down to 1.65%, and with a 10% deposit, you only pay 1.40%. Depending on the loan amount, finding deposit money could be worth doing. For example, putting 5% down on a $100,000 loan will cost you $5000 but save you $1950 in fees. You don't have to pay the VA home loan lending fee at closing. The payment can be rolled into the loan amount.
The nature of the loan also affects the rate. A loan for new construction may differ from a loan for an existing home, and refinancing fees are also different. There are two types of refinancing. The Streamline Refinancing, designed to lower a borrower's monthly payment, only incurs a .5% loan fee. A Cash-Out refinance loan, which allows a borrower to take out money to pay other bills, has the same rates as an initial, no deposit loan. First-timers pay 2.30%, and after that, they pay 3.60%
Before 2020, the loan fee was different for Guard and Reserve members. A new law makes the amounts equal for all service members, including active duty, Guard, Reserve, etc.
Veteran Exemptions from the VA Loan Funding Fee
Some Veterans are not required to pay the Loan Funding Fee. Those included in the exemption are those with the following status.
Any applicant currently being paid VA compensation for a service-connected disability.
Any applicant who qualifies for the above compensation who chooses to receive retirement or active duty pay instead
Any applicant eligible to receive VA compensation because of a pre-discharge disability rating or a review of existing medical evidence.
A surviving spouse of any veteran who died while on duty or from a service-connected disability
Active-duty Purple Heart recipients. In 2020 VA loan funding fee structure changed to allow active-duty Purple Heart recipients to apply for a funding waiver.
To get a funding fee exemption, your VA Certificate of Eligibility must reflect your status as being "EXEMPT."
If you have already paid a VA Loan Funding Fee, you should not assume you are not entitled to a refund. The VA pays about $100 million per year in refunds. Read more about the VA Loan Funding Fee.