VA Home Loans

Generally, all Veterans using the VA Home Loan Guaranty benefit must pay a funding fee. This reduces the loan's cost to taxpayers considering that a VA loan requires no down payment and has no monthly mortgage insurance. The funding fee is a percentage of the loan amount which varies based on the type of loan and your military category, if you are a first-time or subsequent loan user, and whether you make a down payment. You have the option to finance the VA funding fee or pay it in cash, but the funding fee must be paid at closing time.

You do not have to pay the fee if you are a:

• Veteran receiving VA compensation for a service-connected disability, OR
• Veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay, OR
• Surviving spouse of a Veteran who died in service or from a service-connected disability

The funding fee for second time users who do not make a down payment is slightly higher. Also, National Guard and Reserve Veterans pay a slightly higher funding fee percentage. As of January 1, 2020, the Blue Water Navy Veterans Act will impact the funding fee percentages depending on your category of service and loan type, please review the following to determine the path most beneficial to you moving forward:

• Funding fee chart (For loans closed PRIOR to January 1, 2020)
• Funding fee chart (For loans closed ON or AFTER January 1, 2020)

Funding Fee Refunds

You may be entitled to a refund of the VA funding fee, if you had a disability compensation claim pending at the time of loan closing and were later awarded service connected disability compensation. The effective date of the disability compensation must be retroactive to a date prior to the date of loan closing.

If you feel that you are entitled to a refund of the VA funding fee, please contact your mortgage holder or VA Regional Loan Center at (877) 827-3702 to request a refund.

For any funding fee refund issued on or after July 1, 2019, VA is to pay the refund directly to the Veteran, regardless of the loan balance. Prior to July 1, 2019, a provision in VA Pamphlet 26-7, Chapter 8, Topic 8, directed lenders to apply funding fee refunds to an outstanding loan balance in cases where Veterans had financed the funding fee. Effective July 1, 2019, this provision is no longer in effect. For funding fee refunds issued on or before June 30, 2019, VA will not adjust, modify, or redirect payment of a funding fee refund, if it was made in accordance with the provisions of VA Pamphlet 26-7 in effect at the time of processing.

Veterans who receive a funding fee refund may wish to send the refund to their mortgage servicer to apply the refund toward the principal balance of their VA-guaranteed home loan.

Other Loan Costs

Be aware that the lender charges interest, in addition to closing fees and charges. Here are some general rules:

• The lender, not VA, sets the interest rate, discount points, and closing costs. These rates may vary from lender to lender
• Closing costs such as the VA appraisal, credit report, state and local taxes, and recording fees may be paid by the purchaser, the seller, or shared
• The seller can pay for some closing costs. (Under our rules, a seller's "concessions" can't exceed 4% of the loan. But only some types of costs fall under this 4% rule. Examples are: payment of pre-paid closing costs, VA funding fee, payoff of credit balances or judgments for the Veteran, and funds for temporary "buydowns." Payment of discount points is not subject to the 4% limit.)
• You are not allowed to pay for the termite report, unless the loan is a refinance. That fee is usually paid by the seller.
• No commissions, brokerage fees, or "buyer broker" fees may be charged to the Veteran buyer

Adding the VA Funding Fee and other loans costs to your loan may result in a situation in which you owe more than the fair market value of the house, and will reduce the benefit of refinancing since your payment will not be lowered as much as it could be. Also, you could have difficulty selling the house for enough to pay off your loan balance.

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