VA loans are known for offering homeownership opportunities to eligible military veterans and their spouses. However, to keep this program running and self-sustaining, some type of fee is necessary. This is where the VA funding fee is used. Most borrowers are required to pay this fee after the completion of their loan. This helps to keep the program running and self-sufficient. 

In this blog, we will discuss what the VA funding fee and closing costs are, and what the truth is behind them. 

What is the VA Funding Fee? 

The funding fee is a one-time fee required to be paid by borrowers. This fee is paid to the Department of Veterans Affairs. This fee ranges between 0.5% to 3.33% for most. But in some cases, veterans only pay 2.15%. It also depends on the loan type, whether you've used a VA loan before, or have a down payment greater than 5%. Here are some important points to better understand the funding fee:

1. It is necessary to keep the program running and self-sustaining. 

2. This fee will vary depending on the down payment amount, loan type, and service history.

3. If you decide to make a down payment or you have used the service before, the fee can change.

4. For most users, including new ones, the rate is generally 2.15%.

It is required for almost all borrowers to pay this VA funding fee, but some exemptions do exist. This includes borrowers who receive compensation for service-connected disabilities. 

What Are Closing Costs?

The closing cost is an amount of money that is charged aside from the loan itself. This includes the costs incurred by buyers and sellers beyond the property's price to complete a real estate transaction. These costs can include:

1. loan origination fees

2. discount points

3. appraisal fees

4. title searches

5. title insurance

The lenders are required to provide buyers with a closing disclosure three business days before the closing date.

The Truth About Funding Fees and Closing Costs: Are They Helpful?

Yes, these VA funding fee and closing costs are, in fact, necessary. When you look at the bigger picture, you realise that:

1. The funding fee keeps the VA loan program strong. This enables millions of veterans to access affordable housing annually.

2. Closing costs can seem annoying. But they are necessary to ensure all legal and financial details are properly handled. 

Together, they make the VA loan system sustainable and secure. This is crucial in ensuring that veterans today and in the future can purchase their dream homes. 

VA Funding Fee Example

Suppose you take out a mortgage of, say, $300,000 and make no down payment. The first time users of VA would have to pay 2.15% of the total amount. So, for $300,000, you’d have to pay $6,450 at the 2.15% mark. If it is your second time using the VA loan benefit, the funding fee would increase to 3.3 percent. That would come out to be $9000. 

How To Estimate Closing Costs on Your VA Loan?

The lender determines the closing costs. They are required to inform you about them at least 3 days before finalization. Here is a list of all the points that add up to the closing costs: 

1. Origination fee - 1% of the loan amount. 

2. Non-Allowable Fees 

3. Appraisal Fee - Appraisal fees vary from $400 to $ 1,200.

4. Well, Septic and Termite Inspection Fees

5. VA Funding fee - 2.15% for first-time buyers.

All these are used to calculate the total closing costs on your VA loan. 

Some Other Closing Costs

There are also some additional facts to consider. Here are some of them, which are the same across all mortgage types:

1. Discount Points

2. Title Insurance Fees

3. Credit Report

4. Property Taxes and Homeowners Insurance

5. Recording fees

6. Homeowner’s Association fee (HOA)

7. Real Estate Commission

Conclusion 

The VA funding fee and closing costs are crucial components of VA loans and their operation. These fees and costs enable the body to function properly and become self-sustaining. They can be exempted if you fit the category, but regardless, they are an important part of the system. They help ensure that veterans can get their dream homes now and in the future as well. 

VA Loan Facts is an educational resource and mobile application designed to help military families and veterans learn about the VA Loan process and navigate it by providing education, empowerment, and guidance. To find out more, you can go to its application and read at leisure.