VA loan funding fee

What is a VA loan funding fee?

A VA loan funding fee is a one-time fee paid by qualified Veterans, military active-duty service members, and National Guard and Reserve members. This fee is settled when Veterans, military active-duty service members, and National Guard and Reserve members get a VA-backed or VA-direct home loan program. The VA-backed or VA-direct home loan benefit requires a VA loan funding fee to lower the loan costs for taxpayers in the United States. VA home loans do not need down payments, high credit scores, or private mortgage insurance, according to the U.S. Department of Veterans Affairs (VA). VA is under the executive branch of the U.S. federal government that provides healthcare services to eligible U.S. military veterans.

The VA loan funding fee has a funding fee exemption if the Veteran, military active-duty service member, or National Guard and Reserve member is receiving a VA disability compensation each month for a service-connected disability, receiving retirement or active-duty pay each month. There is also a VA loan funding fee exemption for a surviving spouse of a Veteran who died in active service receiving Dependency and Indemnity Compensation (DIC) each month. A military active-duty service member can be exempted from paying a VA loan funding fee if the person has received a proposed memorandum rating before the time of closing of the loan regarding compensation for a pre-discharge claim or has received the Purple Heart.

Is the VA loan funding fee tax deductible?

Yes, the VA loan funding fee is tax deductible as long as it is claimed in the same tax year it was paid. The tax-deductible amount is located in box 5 of the mortgage tax Form 1098. The Form 1098 includes other tax-deductible fees, such as upfront and annual mortgage insurance premiums by the Federal Housing Administration (FHA) and guarantee fees by the U.S. Department of Agriculture.

Did the VA loan funding fee change?

Yes, the VA loan funding fee was changed through Circular 26-23-06 by the U.S. Department of Veterans Affairs (VA). VA announced that the VA funding fees for purchase, construction, and cash-out refinance loans closed on or after April 7, 2023, are reduced.

For VA purchase or construction loans, the funding fee percentage was lowered by 0.15% from 2.30% to 2.15% on first use, with a downpayment of less than 5%. For downpayment amounts of 5% or more and 10% or more, the funding fee percentage was lowered from 1.65% to 1.5% and 1.4% to 1.25%, respectively. On subsequent uses, the funding fee percentage was reduced by 0.3% for down payments less than 5% and 0.15% for 5% or 10% downpayment or more.

For VA cash-out refinance, the VA loan funding fee for the first use was lowered from 2.3% to 2.15%, and the subsequent use was lowered from 3.6% to 3.3%.

What is the VA loan funding fee amount?

The VA loan funding fee amount is a percentage of the total loan amount. The percentage of the total loan amount is calculated based on the downpayment. If the downpayment is less than 5%, the VA loan funding fee amount is from 2.15% to 3.3% of the total loan amount. If the downpayment is 5% or more, the VA loan funding fee amount is 1.5% of the total loan amount. For a downpayment of 10% or more, the VA loan funding fee amount is 1.25% of the total loan.

Is the VA funding fee included in the loan?

Yes, the VA funding fee can be included in the VA-backed loan or VA-direct home loan, according to the Department of Veterans Affairs (VA). VA also states that the VA funding fee can also be paid in full once at closing. Paying the VA funding fee in full allows loan borrowers to have lower mortgage payments.

There are other options to pay for the VA funding fee, such as including it in the financing as part of the monthly payments and asking the seller to pay for the VA funding fee as part of the closing cost. If the seller pays for the VA funding fee, it is called a seller concession. A seller concession is a closing cost that the seller has agreed to pay but should not exceed 4% of the total loan balance.

Is there VA loan guaranty funding fee refund?

Yes, there is a VA loan funding fee refund, according to the Department of Veteran Affairs (VA). VA states that if disabled veterans or military service members receive VA compensation for a service-connected disability, they are eligible for the VA funding fee refund. For the funding fee refund of the VA loan eligibility, the effective date of the VA compensation should be retroactive to before the date of the closing of the loan.

On the other hand, if the proposed memorandum rating is acquired after the loan closing date, the Veteran, military active-duty service member, or National Guard and Reserve member will still need to pay for the funding fee and not be eligible for a funding fee refund.

What is the VA loan subsequent use funding fee percentage?

The VA loan subsequent use funding fee percentage applies to veterans, active-duty service members, and National Guard and Reserve members who are not first-time homebuyers. The percentage of subsequent loan is higher compared to first-time use of VA-backed purchase and construction loans, with a downpayment of less than 5%. For a downpayment of less than 5%, first-time Veteran homebuyers pay a VA funding fee of 2.15%, while subsequent buyers pay 3.3%.

On the other hand, for a downpayment of 5% or more and 10% or more, the VA funding fees for both first-time and subsequent buyers are identical at 1.5% and 1.25%, respectively. The VA loan subsequent use funding fee percentage for VA-backed cash-out refinancing loans is 3.3%, while the first-time funding fee percentage is 2.15%. VA-backed cash-out refinancing loans have the same VA loan funding fee regardless of the downpayment amount.

The VA loan subsequent use funding fee percentage for Native American Direct Loan (NADL) is the same as the first-time VA loan funding fee. The VA loan funding fees for the purchase and refinance NADLs are 1.25% and 0.5%, respectively.

How much is the funding fee for VA loan?

The funding fee for VA loans is based on the Department of Veteran Affairs (VA) on several factors. The first is the total amount of the VA loan. From the total amount of the VA loan, a percentage will be calculated as the funding fee. 

The second factor is the loan type, like VA-backed or VA-direct home loan programs. A VA-backed home loan is a partly guaranteed loan from a private lender. The private lender can recover losses in the event the VA-backed home loan goes into foreclosure.  The VA-direct home loan is where VA serves as the mortgage lender. One example of this is the Native American Direct Loan (NADL). The NADL offers better terms compared to private lenders, according to the Department of Veterans Affairs (VA).

Another factor is the downpayment amount. The downpayment amount can be less than 5%, 5% or more, and 10% or more. The higher the downpayment amount is, the lower the VA funding fee will be.

One more factor is if the Veteran, military active-duty service member, and National Guard and Reserve member is a first-time VA loan borrower or a subsequent-time borrower for the VA-backed or VA-direct home loan.

What is the cost of VA home loan funding fee?

The cost of VA Home loan funding fee is dependent on several factors, such as the total loan amount or purchase price, VA loan type, first-time or subsequent use, and downpayment amount. These factors affect the cost of VA home loan funding fees. Currently, the VA funding fee cost is 2.15% of the loan amount for first-time homebuyers and 3.30% for subsequent homebuyers at less than 5% downpayment.

The VA home loan funding fee can be computed with ease with a VA loan funding fee calculator.

VA loan funding fee calculator

The VA loan funding fee calculator can be used to compute the VA funding fee. The VA funding fee is computed by getting the percentage of the total loan amount of the property. Aside from the total loan amount of the property, the VA loan funding fee calculator also considers other factors such as downpayment amount, service-related disability status, and first-time usage of the VA mortgage loan.

VA loan funding fee chart

The VA loan funding fee chart shows how the VA funding fee amount is calculated based on the type of loan and whether the buyer is a first-time or a subsequent time. The VA loan funding fee chart rates for Veterans, active-duty members, and National Guard and Reserve members were updated last April 7, 2023. Veterans, active-duty members, and National Guard and Reserve members can enjoy lowered rates for VA-backed purchase and construction loans, VA-backed cash-out refinancing loans, Native American Direct Loan (NADL), and other VA home loan types like Interest Rate Reduction Refinance Loans (IRRRLs), manufactured home loans, loan assumptions, and vendee loans compared to the previous rate.