If you’re a veteran buying a home, you’ll find no better resource than VA loans to make it happen. They feature lower interest rates and easier loan qualifications to make it easier for veterans to purchase homes. You should know, however, that VA loans do require that the borrower pays a funding fee. Fortunately, you can figure out how much your funding fee will be by reading the guidelines for VA loan funding fees.
Basic VA Loan Funding Fee Rates Information
- First-time borrowers’ funding fees are set at 2.15%.
- Second-time borrowers’ funding fees are set at 3.3%.
- Making a down payment can greatly reduce funding fees.
Although all VA loan borrowers are required to pay a funding fee, how much each borrower will have to pay varies depending on a number of criteria, including how much you contribute for a down payment and whether you’re a first- or second-time VA loan borrower. Below, we give you everything you need to know to calculate the amount of your VA loan funding fee.
How VA Funding Fees Are Determined
Every VA loan requires a funding fee. For a zero down payment and first-time borrower, the VA loans funding fee is currently set at 2.15% — this includes purchase or construction loans. It’s designed to demonstrate a contribution from the borrowing veteran. For zero down payment and second-time borrower VA loans, the fee goes up to 3.3%. The thought process behind the second group having a higher funding fee rate is that second-time borrowers have already benefitted once from the program; they’ve also had more time to put away money for a down payment.
Those borrowers who plan to make a down payment on their VA loan can most likely plan on their funding fee changing. For instance, if a first-time borrower makes a down payment of 5-10%, their funding fee rate can drop from 2.15% to 1.25%. Second-time borrowers making a similar 5-10% down payment will see their funding fee rate drop from 3.3% to 1.5%. If borrowers in either group put down more than 10%, the lowest possible rate to which their funding fees could drop would be 1.25%.
One special consideration for funding fees exists for veterans who are Reservists or members of the National Guard. Among these groups, veterans can expect to pay slightly more in funding fees. For example, first-time borrowers with no down payment must pay funding fees of 2.4%, instead of 2.15%. That rate goes down to 1.75% if the veteran puts down 5-10%.
For second-time borrowers who are Reservists or National Guard members and have no down payment, however, the funding fee stays the same at 3.3%. A down payment of 5-10% will reduce the funding fee dramatically to 1.75%; a down payment greater than 10% takes the rate down to 1.5%.
Do you still have to pay a funding fee if you are just refinancing an existing loan? Yes. For most first-time borrowers, the funding fee will be 2.15%. It would be 3.3% for second-time borrowers. For Reservists or members of the National Guard, first-time borrowers will pay 2.4% in funding fees, and non-first-time borrowers 3.3%.
And finally, for the only other type of VA loans, an interest rate reduction loan, the funding fee is only 1.0% for manufactured homes and 0.5% for all other properties.
One of the best things about VA loan funding fees is that, if you know the criteria by which they determine funding fees, you can determine from the start what you will have to pay. In the event that you have additional questions about funding fees on VA loans, we recommend that you discuss with your lender your particular situation and what kind of funding fee you can expect. A lender will be up to date on the most recent rules and criteria around VA loans and be able to give you the most accurate answer possible.