VA Home Loan Funding Fee
VA Funding Fees - VA loans typically cost you no cash "out of pocket" however, in order to receive a VA loan you will be charged a fee that vary depending on your veteran status.
This is called a Funding Fee and is required by law. Instead of paying monthly mortgage insurance as in a conventional loan where you put down less than 20% of the loan amount, a VA loan charges a small fee that offsets the need for mortgage insurance.
Generally, "Funding Fees" for VA home loans fees range from 0 to 3.3% of the loan amount. So on a $200,000 VA home loan the funding fee maximum of would be about $6600.
Funding can be fully financed - The good news is the VA funding fee can be rolled in with the total loan amount in the event you are limited on funds...so no out of pocket cash by you is required.
Basically this funding fee waives the mortgage insurance that normaly is paid monthly on conventional loans. The rational for the funding fee is that you, the VA borrower are contributing to the fee payment thus reducing the burden on taxpayers - however the fee costs you nothing out of pocket.
Disabled Vets Not Required to Pay Funding Fee
Disabled Vets May Waive Funding Fee - If you are deemed 10% disabled as a result of your military service, VA rules state you are not required to pay any funding fee.
VA Funding Fee Example
How VA Funding Fee is Calculated - VA funding fee is based on a few variables like your military status and whether or not you put a down payment the loan. Guess what? The greater your down payment the less less VA funding fee you'll be required to pay. In a nutshell... more down payment - less fee.
There is a cost advantage to buying with a down payment and you should attempt to put something down - if possible.
For example, say your looking to buy a $200,000 home. If you're a regular veteran paying no down payment, you will be required to pay a 2.15% funding fee, about $4300. Since the funding fee is "rolled into your loan" you are financing $204,300. Your monthly payment would be $1,224 and overall interest paid, assuming a 30 year fixed rate at 6%, would be about $236,340.
Financing the same loan with 5% down payment would require only 1.5% funding fee. So the amount you are financing is $192,850 ( 200,000-5% plus 1.5%). Your monthly payment is now about $1,156, and your overall interest payment is $223,310. You'll save about $13,030 in total interest payment if you put down 5%, ($10,000) towards your loan.
Think of it this way: You save about $68 monthly or $816 annually by paying the 5% down. The decision to put a cash deposit down depends entirely on your financial situation and so consider all your expenses and if you can afford to put that "chunk of cash" down.
Reserve and National Guard Funding Fee If your in one of these branches the funding fee is sightly higher starting at 2.4% with no down payment. If you can scrap up a 5% deposit you will be charged a 1.75% funding fee. This fee, of course can be fully financed.
