The VA charges a funding fee anytime you take out a new VA loan. Veterans pay this fee directly to the VA. It’s what helps the VA remain self-sustaining. The money sits in the VA’s reserve account and is used in the event that the VA has to pay a lender due to borrower default.
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On a VA purchase loan, veterans pay a funding fee of 2.15%. On the streamline refinance loan, though, veterans get a break. You only have to pay 0.5% of your loan amount and you can wrap the fee into your loan.
The VA funding fee for the streamline refinance is the same for active military members, veterans, and members of the Reserves or National Guard which is yet another difference between the VA purchase loan.
Exempt Borrowers
Some veterans are exempt from funding fees on any VA loans, including the VA streamline refinance. Veterans that were injured during the line of duty or who suffered a disability as a result of their service may be exempt.
Only the VA can determine if you are exempt from paying funding fees. If you are in the midst of waiting for approval on your disability rating and you refinance, you can request a refund of the funding fee if you do receive your disability rating and it’s dated prior to the date of your loan closing.
How you paid the funding fee will be the method the VA refunds it to you. If you paid it in cash at the closing, the VA will issue you a check. If you wrapped the fee into your loan amount, the VA will pay the principal balance of your loan down an amount equal to the funding fee that you paid.
The Purpose of the Funding Fee
Veterans paying the funding fee is what keeps the VA able to guarantee loans for veterans. In other words, it makes it possible for you to secure 100% financing on a home. It also allows VA lenders to use the relaxed guidelines the VA provides.
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Not too many other programs can allow a minimum 620 credit score, a maximum 43% debt ratio, and still provide 100% financing. When you compare those requirements to conventional loan requirements, they seem extremely relaxed and yet the VA allows it. That’s where the funding fee plays a role. With the reserves the VA can save up, they are able to bail lenders out that experience a defaulting borrower. VA loans have some of the lowest default rates out of any loan program, but when a borrower does default, the VA is there for the lender.
The VA continues to be able to provide these benefits for future veterans at no extra cost to taxpayers. Without the funding fee, taxpayers would likely field the burden of covering the defaulted loans. Fewer lenders would also be willing to supply the VA loans to eligible veterans.
FAQ:
Do you ever get a refund of the VA funding fee?
Whether you sell the home or refinance the loan, you will not see a refund of the VA funding fee. The only exception to this rule is borrowers that find out they were rated disabled by the VA prior to the closing date of the VA loan.
Is the VA funding fee dependent on your credit score or debt ratio?
No. All veterans pay the same VA funding fee no matter their credit score, debt ratio, or any other qualifying factors. All VA IRRRL borrowers pay 0.5% no matter their branch in the military either.
Are there a maximum number of times you can pay the VA funding fee?
No, as long as you keep taking out VA loans, you will pay the funding fee. Whether you buy your first or fifth home with the VA loan, you will always pay a funding fee.
Does the VA IRRRL program charge monthly mortgage insurance?
No, the only fee the VA charges on top of the lender charges is the VA funding fee. You are not responsible for paying any mortgage insurance at any point during the loan, even if you borrow 100% of the home’s value.
Do surviving spouses of veterans pay the VA IRRRL funding fee?
No, surviving spouses of veterans killed in the line of duty or as a result of a complication of their service do not have to pay the VA funding fee.
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