If you’re a veteran, service member, or surviving spouse looking to buy or refinance a home, you may be wondering what the VA loan funding fee is and how much it will cost you.
The VA loan funding fee, in simple terms, is a one-time fee that must be paid when obtaining a VA-guaranteed home loan. The fee pays for the administration of the VA loan program that provides many benefits to veterans and qualified surviving spouses.
In this article, we’ll examine the changes made to the VA loan funding fee structure in 2023 and what you need to know about this fee.
Determining The VA Loan Funding Fee Amount
The amount of the VA loan funding fee that you will be required to pay depends on several factors, including:
- whether you’re purchasing or refinancing a home
- whether or not you’re making a down payment
- whether it’s your first time using the VA loan benefit or a subsequent use
Your Certificate of Eligibility will help your lender determine the VA loan funding fee amount you’ll be required to pay.
New VA Loan Funding Fee Structure
On February 14, 2023, the Department of Veterans Affairs updated the VA loan funding fee structure for certain loan scenarios, while others remained the same.
The new structure will go into effect on April 7, 2023, and apply to VA loans closed on or after that date and before November 14, 2031. In many cases, the updated structure has lowered the funding fee, which is good news for borrowers.
VA Purchase Or Construction Loans
For first-time users, the VA loan funding fee is based on the down payment amount.
If you’re not putting down any money or a down payment of less than 5%, the funding fee is now 2.15%, versus the previous fee of 2.3%. However, if you’re making a down payment of 5% or more, the funding fee drops to 1.5%. If you’re making a down payment of 10% or more, the funding fee drops even further to 1.25%.
For subsequent users, the VA loan funding fee is higher. Therefore, if you’re not making a down payment or a down payment of less than 5%, the funding fee remains the same at 3.6%. But if you’re making a down payment of 5% or more, the fee drops to 1.5%. If you’re making a down payment of 10% or more, the fee is now 1.25%.
VA Cash-out Refinance
If you’re doing a VA cash-out refinance, the VA loan funding fee is the same for first-time and subsequent users. The fee is 2.15% of the loan amount for first-time users and remains at 3.3% for any subsequent use.
Other VA Home Loans
The funding fee for other VA home loans has not changed. For Interest Rate Reduction Refinance Loans (IRRRLs) or streamline refinances, the funding fee is still 0.5%. Loan assumptions still have a funding fee of 0.5%, and Native American Direct Loans (NADL) have a funding fee of 1.25%.
Exemptions For Some Borrowers
If you’re a qualifying surviving spouse or have a VA-rated disability, you may be exempt from paying the VA loan funding fee.
However, remember that being exempt from the VA loan funding fee is not automatic and requires an application. Your lender will need to review your VA Certificate of Eligibility to verify your eligibility for a waiver of the VA loan funding fee.
As you can see, the upcoming changes to VA funding fee rates for loans closed on or after April 7, 2023, are an important development for borrowers. While some borrowers may be eligible for a fee waiver or reduced funding fee based on their down payment, those who do not qualify for these exemptions will be subject to the new funding fee percentages.
If you are a non-exempt Veteran planning to close on a VA transaction on or after April 7, 2023, it is essential to be aware of the new funding fee rates and to factor them into your financial planning.
I encourage you to reach out to your lender or loan officer if you have any questions or need assistance in understanding how these changes will affect you.