There’s been a lot of confusion and uncertainty recently regarding the VA Funding Fee, which is a mandatory government fee on every purchase and refinance loan backed by the Department of Veterans Affairs.
The bottom line is this: The fee levels will remain the same through September 2016 after President Obama signed legislation this week that included a provision regarding the funding mechanism.
Explaining the Funding Fee
While VA loans continue to have the lowest rate of foreclosure of any major loan product, the reality is thousands of veterans default on their mortgages each year. The VA Funding Fee helps to cover those losses and keep the program afloat financially, ensuring that future generations of military homebuyers can capitalize on the benefits earned by their service. You can see a full breakdown of the VA Funding Fee charges for purchase and refinance loans in an earlier post.
Most VA homeowners choose to roll the fee into their overall loan amount, adding a few extra dollars to each month’s mortgage payment. Borrowers with service-connected disabilities are exempt from paying the funding fee.
Confusion set in this fall when the recent VA Funding Fee rates were set to decrease. While that sounds like a great thing for veterans, the potential consequences were anything but. Lower fees could lead to a budget deficit, which in turn would put the VA home loan program at the mercy of Congressional appropriations.
Retaining the current, higher rates ensures the program is self-funding. That means the agency doesn’t have to ask Congress for money to continue guaranteeing home loans for America’s veterans.
The Funding Fees actually decreased at the end of September but the pending legislative relief added to the uncertainty.
The situation has probably been most confusing for veterans trying to close on a VA loan in recent weeks.
The VA provided some clarity a day after the bill’s signing: Veterans whose loans closed Nov. 18-21 will pay the lower funding fee. In those cases, the VA will not require lenders or anyone else to cover the difference now that the higher fees are back in place.
Otherwise, all VA purchase and refinance loans moving forward will include the same Funding Fee rates as before.
Please let us know if you have any questions about the VA Funding Fee or any other costs and charges associated with the VA loan program. One of the most powerful benefits of VA loans is that borrowers typically pay little to nothing out of pocket to secure financing.