Simply put, VA Funding Fee is the fee you are charged to use the VA Loan.
Now with a VA Loan, you do not have to have a down-payment, and you are not required to carry mortgage insurance. These two factors alone save you tens of thousands of dollars along the life of the Loan.
BUT the VA does charge a funding fee to off set their risk in approving the loan. The funding fee is automatically lumped into the mortgage, and any payment estimate you receive would include it as a factor.
This Funding Fee is reported under closing costs in your loan disclosures which makes these documents you receive once under contract scary, but rest assured you are not coming out of pocket at closing for the VA Funding Fee, the amount will be financed in.
The VA Loan Funding Fee is 2.15% of the Purchase Price the first time you use the loan product. As we have gone over before you can use the VA Loan multiple times – all subsequent times you use the Loan product the Funding Fee is 3.3% of the Purchase Price. Still think this sounds high?
If you look up the term PMI or private mortgage insurance on Google, one of your first results is “6 reasons to avoid private mortgage insurance” with the top justification being it is typically 1% of the ENTIRE loan amount assessed annually. So instead of 2.15% charged ONE TIME at closing, with the amount lumped into your loan; you are charged 1% of your loan balance every year which is then divided by 12 to get the monthly amount. At a purchase price of $240,000 that comes out to $200 extra per month for the first year, whereas the lumped in amount of a VA funding fee at the same price point costs you about $15 per month.
The VA Funding Fee is considerably better when compared to the cost of mortgage insurance that all other loan types carry. Being that the VA Loan typically rests at some of the lowest rates on the market, this is another factor that displays the superiority of the VA Loan product.
You can access more information on the VA Loan Funding fee by visitng the official VeteransAffairs.GOV website.
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