How Much is the VA Loan Financing Fee in 2020?


The funding fee is up for 2020 and can be expensive – potentially costing thousands of dollars. But there are ways to reduce it, and you may qualify for an exemption and not have to pay the funding fee at all.

What is the VA Financing Fee?

Side view of a young adult African American male soldier in the yard outside his home, holding his young son and waving him around, both smiling, their house in the background
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When you buy a home with a VA loan, the financing fee helps cover the costs of the VA.

When you take out a VA loan, you help buy, build, or repair a home, you are borrowing not directly from the Veterans Affairs Department but from a private lender who works with the agency.

The VA guarantees the loan, which means that the department agrees to repay some of the money if you stop paying.

The funding fee goes directly to the VA to help with the agency’s costs of defaulting borrowers.

In exchange for competitive interest rates and looser credit terms, most borrowers have to pay the fee, which is calculated as a percentage of the loan amount.

The percentage can vary depending on whether you’re making a down payment and whether you’ve ever used a VA guarantee loan before. It can be as high as 3.6% or as low as 1.4%.

Veterans: $ 0 down, no PMI, and lower monthly payments. Working with Veterans United Home Loans.

How Much is the VA Loan Financing Fee?

Newbies to the program and borrowers willing to make at least a 10% down payment will pay the lowest fees, on a percentage basis.

With the 2020 raise included, this is how the VA financing fee is calculated “buy loans” – loans to buy houses.

VA Financing costs for purchase loans in 2020
Maintenance Deposit Financing costs for the first time VA loan user Financing costs for returning user
Regular army 0 to 4.9% 2.3% 3.6%
5% to 9.9% 1.65% 1.65%
10% and higher 1.25% 1.25%
Reserves / National Guard 0 to 4.9% 2.3% 3.6%
5% to 9.9% 1.65% 1.65%
10% and higher 1.25% 1.25%

While making a down payment is not required for a VA loan, you can choose to significantly reduce your borrowing costs. But that means you have to collect a large amount of money, which is not easy for many military households.

If you are using a VA loan to purchase a cash-out refinancing – borrow more than you owe to provide some money for home repair or other purposes – costs are similar to those for purchase loans, although you can’t lower your borrowing costs by making a down payment.

VA Loan Cash-Out Refi Financing Costs in 2020
Maintenance Financing costs for first time user Financing costs for returning user
Regular army 2.3% 3.6%
Reserves / National Guard 2.3% 3.6%

The VA also offers its Interest rate cut Refinancing loan, or IRRRL – often referred to as “Earl” and sometimes referred to as a “streamline refinance.” With this refi, a homeowner who has a VA loan can move to a new one at a lower mortgage rate, or can adjustable rate mortgage for a fixed rate loan.

The IRRRL funding fee is a straight 0.5% of the loan amount for all borrowers – unless they have earned an exemption.

How to get an exemption from the financing fee

Veteran in wheelchair returned from army.  Close-up photo veteran in a wheelchair.  Wheelchairs and legs in military uniform.
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Disabled veterans are exempt from paying the funding contribution.

The VA loan program takes into account the specific circumstances of each service member and adjusts the terms and fees of a loan accordingly.

These categories of borrowers have traditionally been exempt from paying the financing fee:

  • Veterans who receive or qualify for compensation because of a service-related disability.
  • Surviving spouses of military members who died in service or as a result of a service-related disability.

The new law that increased the funding fee on January 1, 2020 also added a new exemption for:

  • Active duty service providers who have earned a Purple Heart.

A veteran who takes out a home loan, pays the financing costs, and qualifies for disability benefits retroactively – going back before closing – may be able to get a refund of the financing costs.

How to pay the financing costs

For many service workers and veterans who are not exempt, the VA loan finance fee can come as an unpleasant surprise.

If you secure your first VA loan in the amount of $ 200,000 and choose not to make a down payment, you will have to pay an additional $ 4,600 (2.3%) when you sign your mortgage papers. You cannot ignore that.

“You have the option to fund the VA financing fee or pay in cash, but the financing fee must be paid at closing time,” the Department of Veterans Affairs said on his own. website.

Financing the financing fee means that it will be deposited into your loan amount and it will be paid off through your monthly mortgage payments – meaning that the fee will increase your interest expense over time.

If you add a $ 4,600 to $ 200,000 loan at 3.6% interest, you could pay nearly $ 3,000 in interest over the life of a 30-year loan.

As with making a down payment, paying the funding fee up front can be a daunting task for many service workers and military families. But if you can, you’ll save money in the long run.

Extra VA loan costs

construction, mortgage, investment, real estate and property concept - close up of house or home model and money
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Closing costs for VA loans can be as much as 5% of the loan

In addition to the financing costs, VA home loans come with a handful of other costs.

Under government rules, commissions and brokerage fees should not be charged to buyers using VA loans.

But closing costs for veterans and service workers in the program can run as high as 5% of the loan amount.

The Department of Veterans Affairs allows home sellers to cover some closing costs, up to 4% of the amount borrowed. But the buyer / borrower must pay the rest, including all state and local taxes and the full cost of the VA appraisal, which assesses the home’s fair market value and whether it is healthy.

VA loans are a great deal, but it’s up to you to do your research so you don’t face inappropriate fees and end up paying more than you should. You want to get the best deal possible.

Find a Lender: Check your eligibility with Veterans United Home Loans.

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