Tips & Special Topics
The Cost Associated with Obtaining a VA Loan
Added January 28, 2008 | Updated February 16, 2009
The VA loan programs have assisted many of the brave men and women who have served in the United States Armed Forces in purchasing or refinancing a home. VA home loans have program-specific costs. The unique fee associated with VA loans is the VA funding fee. Qualifying veterans must pay a VA funding fee, usually just over two percent, to the Veteran Benefits Administration when obtaining a VA loan. However, certain veterans are exempt from paying the funding fee. For instance, veterans with a service-related disability may be exempt in certain cases.
If a veteran makes a down payment of five percent or more, then this will reduce the amount of the basic funding fee to 1.5%. The funding fee can even be reduced to 1.25% if a down payment of ten percent is made. If a veteran is able to make a down payment, doing so can save hundreds of dollars that would go towards the funding fee. The down payment is very important because the amount of the loan is reduced, therefore reducing the risk to the lender, as well as the amount of interest paid by the lender.
There is also good news for veterans who are interested in a VA home loan refinance. A veteran who has a VA mortgage loan and does a “streamline refinance” in order to lower the interest rate, pays a funding fee of only 0.5%. Not only does a veteran receive a VA home loan at a lower interest rate, but also the funding fee is very low. This is an important benefit of “streamline” refinancing an existing VA mortgage loan.
Generally, a veteran who is using entitlement for a second or subsequent time is required to pay a funding fee of just over three percent, if a down payment of five percent or more is not paid.
Veterans can pay the funding fee in cash or include it into the amount of the loan. This is great for a veteran who does not have the funds for the funding fee on hand.
There can be other costs associated with VA home loans. The lender may charge a borrower reasonable closing costs. The closing costs may or may not be included in the amount of the loan. The closing costs may be paid by the veteran, the seller, or shared between the two. Laws vary from state to state, and the amount of closing costs varies from company to company.
There are several advantages to obtaining a VA loan. In certain cases, a VA loan can save a veteran thousands of dollars. A veteran who qualifies should definitely consider applying for a VA home loan. A VA home loan can be your ticket to a wonderful house and tremendous financial savings at the same time.
