The VA funding fee is a one-time fee paid to the Department of Veterans Affairs (VA) when taking out a VA-backed home loan. This fee helps to offset the cost of administering the VA home loan program. It’s typically a percentage of the total loan amount and varies depending on several factors, including the type of loan, the borrower’s military service category, whether it’s a first-time or subsequent use of the VA loan benefit, and the down payment amount (if any). The funding fee can be rolled into the loan amount or paid upfront at closing. It’s important to note that the funding fee is different from a down payment and is required unless the borrower is exempt due to receiving VA compensation for a service-connected disability.

VA Loans are fantastic because they does not have monthly mortgage insurance like FHA, USDA and Conventional financing but it does have quite the funding fee upfront for those that are not exempt.

You have two types of funding fees for purchase loans. You have first time use of a VA benefit and subsequent uses.

First first time users financing 100% of their home the funding fee is 2.15%. Did you know that if the borrower puts 5% down on the purchase that their funding fee is only 1.5% and if they put 10% or more down it is 1.25%.

This is where giving options is the key. The rate will be the same or similar but the costs will be reduced.

On a 300K loan the difference is:

• 100% LTV = $6,450 Funding Fee
• 95% LTV = $4,500 Funding Fee
• 90% LTV = $3,750 Funding Fee

BUT, here is a bigger deal. If you have used your VA benefit and this is a second time use check out the differences.

Again, on a 300K Loan

• 100% LTV = $9,900 Funding Fee
• 95% LTV = $4,500 Funding Fee
• 90% LTV = $3,750 Funding Fee
• 5% Down Payment Saves $5,500. That will separate you from your competitors by just offering it. 10% down gives them a savings of $6,150.

Here are few tips on VA Loans and funding fees that go with them

On VA Cash Out loans first time use is 2.15% and subsequent use is 3.3% so no benefit in LTV reduction. You do get a pretty big rate adjustment on cash out once you go above 90% LTV though. 

There is a 1.875% pricing adjustment for cash out above 90% LTV. On a 300K loan that is a $5,625 adjustment to pricing. 

The last tip is VA does not have a rate and term loan. It is either purchase, cash out or IRRRL (interest rate reduction loan). So even if just paying off the mortgage above 90% it is still classified as a cash out.

Ok, one more tip. Did you know if you are paying off a construction loan and they are not living in the house yet you can do it as a purchase or a cash out. Look at the savings in treating it as a purchase on a construction to perm loan.