Monday, October 27, 2008

VA Funding Fee

VA loans have a borrower fee known as the VA Funding Fee, which ranges from 1.25% to 3.3% of the loan amount on purchase transactions. The exact amount depends on whether the borrower is/was in the regular military or the Reserves/National Guard; the amount of the downpayment, if any (VA loans can be for 100% financing); and whether the borrower has previously used their VA entitlement.

The VA Funding Fee can be financed into the loan, and typically is. However, there are certain circumstances which exempt the borrower from the funding fee. The following people do not have to pay the funding fee (taken from the VA Handbook):

-- Veterans receiving VA compensation for service-connected disabilities.
-- Veterans who would be entitled to receive compensation for service-connected disabilities if they did not receive retirement pay.
-- Veterans who are rated by VA as eligible to receive compensation as a result of pre-discharge disability examination and rating.
-- Unmarried surviving spouses of veterans who died in service or from service-connected disabilities.

Among other advantages, VA loans have the lowest interest rates (same as FHA), allow 100% financing, and require no mortgage insurance. They are almost always the best financing option for veterans, or members of the active military or Reserves/National Guard.

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