What Is a VA Funding Fee?

VA Loan After Bankruptcy

For those consumers who are active in the military, reserves, discharged veterans and their spouses a VA loan is a great option to becoming a homeowner. VA loans are backed by the U.S. government and offer zero downpayment options with competitive interest rates. The great part of a VA loan is no monthly mortgage insurance needed as seen on conventional and FHA loans. There is one additional cost to a VA loan which is the funding fee though this is added to mortgage so there is not out of pocket expense.

A VA funding fee is a one-time fee which is paid to the Department of Veteran Affairs and helps keep the VA program functioning. The funding fee is a function of the down payment and if you put less than 5% down the cost is just over 2% of the mortgage amount.

The VA funding fee could be viewed as a substitute for mortgage insurance but unlike conventional and FHA loans it is a single payment. It acts as insurance if the VA mortgage goes into default. Conventional loans require mortgage insurance if making less than a 20% down payment. FHA loans always require mortgage insurance regardless of down payment. Remember, on a VA loan the big benefit is you don’t have to make a down payment. That’s huge!

Your options for the VA funding fee are to finance it as part of the loan, pay for it up front as a closing cost or have the seller pay for it as part of a seller concession. There are certain instances where you may be eligible to be exempt from the funding fee. You can determine this by checking your VA certificate of eligibility (COE).

The reality is a VA loan is a great loan for anyone who is eligible. To learn more talk to a trusted mortgage professional such as the Home Loan Advisors at Hall Financial.