What is a VA loan?

VA loans were developed to encourage and allow more eligible veterans and service members to achieve the American dream of buying a home. VA loans are government-backed loans that offer highly competitive interest rates and require little to no down payment.

What Is a VA loan funding fee?

A funding fee is a one-time payment that helps lower the cost of a loan for U.S. taxpayers and can either be paid up front or rolled into the cost of the loan.  Even though VA loans have funding fees, you’ll likely find the benefits of a VA loan outweigh the cost of the fee.

How much is a VA funding fee?

Assuming you’re eligible for a VA loan, there are three key factors that determine your VA funding fee:

• Whether you have ever had a VA-backed loan before — if so, a new VA loan is often referred to as "subsequent use”
• How much money you are using for a down payment
• The total amount you are borrowing

You may be thinking, “Wait a minute, VA loans don't require a down payment!” That's correct, but whether or not you put money down, and how much you put down, helps to determine your funding fee.

If you've never used a VA Loan before, then the funding fee for a home purchase (not for refinancing) is determined as follows:

• If your down payment is less than 5%, your funding fee would be 2.3% of the loan.
• If your down payment is 5% or more, your funding fee would be 1.65% of the loan.
• If your down payment is 10% or more, your funding fee would be 1.4% of the loan.

Here is an example for you to follow if you have a home purchase price of $250,000:

• With a down payment of $0, your funding fee would be $5,750 which may be rolled into your overall loan.
• With a down payment of 7% ($17,500), your funding fee would be 1.65% of the loan amount, or $4,125.

Here are the 2020 fee percentages for someone who has already used a VA Loan benefit (subsequent use):

• With a down payment less than 5%, the subsequent use funding fee is 3.6% of the loan.
• With a down payment more than 5%, the subsequent use funding fee is 1.65% of the loan.
• With a down payment more than 10%, the subsequent use funding fee is 1.4% of the loan.

Are funding fees the same as closing costs?

The short answer is no, because a VA loan funding fee could be one of the costs required during closing if you haven't rolled the fee into your mortgage. Typical closing costs usually include things like lender fees, appraisal costs, property taxes, and discount points.

Are there any exemptions to funding fees?

You may be exempt from a VA loan funding fee if you meet one of the following criteria:

• Entitled to or receiving compensation for a service-related disability
• Active-duty service member who has received a purple heart
• A spouse of a veteran who died while serving or through a service-related disability

Is there a VA funding fee if I refinance?

There are two types of VA loan refinancing options. One is an Interest Rate Reduction Refinance Loan (IRRRL) and the other is a cash-out refinance.

The good news is that it doesn't matter how many times you've used the VA loan program, your IRRRL rate is a flat 0.5% of the amount you borrow unless you are exempt. Cash-out refinance funding fees, however, are similar to VA purchase funding fees listed above. Note that you can't game the system by getting a cash-out refinance to lower funding fees.

To learn more about PenFed VA loans:

• Call 866-386-7254
• Visit the Mortgage Center