Fannie Mae and Freddie Mac to refinance, even if they don’t have any equity in their homes or strong credit
One of the first options military members consider for a home purchase is their right to apply for a VA home loan. Most real estate agents and mortgage lenders will, at minimum, recommend investigating a VA loan because it is an attractive option due to affordability. A down payment isn’t required, nor is the need for private mortgage insurance.
For first timers, and even those using their benefit for a second time, understanding the details of fees involved with accessing the loan is an overwhelming process. Amongst the fees a buyer will incur during the VA home loan process is one known as the funding fee. The funding fee is applied to every VA purchase and refinance loan, with only a few exceptions.
Details of the Funding Fee
In the simplest terms, the funding fee exists to offset costs that occur due to VA guaranteed loans that default. The fee also helps relieve U.S. taxpayers the full burden of backing the loans. The Department of Veterans Affairs receives all of the funding fees to assure future availability of VA loans to service members.
The funding fee is adjustable according to multiple factors, including the details of the military member’s service, if there is a down payment applied, and number of times the loan benefit has been used in the past. Active duty service members traditionally pay the lowest funding fees among their military peers, National Guardsmen, and Reservists.
Use this easy to understand example from Veterans United to compare what your funding fees might look like. “On a typical $200,000 loan, a Regular Military veteran using a VA loan for the first time would borrow an additional $4,300 to cover the funding fee.”
Funding Fees and VA Refinance Products
If the service member is currently in possession of a VA Loan, there are two refinance options available that require funding fees: the Interest Rate Reduction Refinance Loan (IRRRL) and the Cash-Out refinance. Each has their own function, and the funding fees vary tremendously due to the specific purposes of the loan.
- IRRRLs are offered to help VA homeowners lower their mortgage rates or to exit an adjustable rate loan. Unless exempt, all homeowners are required to pay 0.5% as a funding fee. The number of times the VA home loan benefit has been used is not a factor, nor are the details of the member’s service.
- The Cash-Out refinance fees are similar to a typical VA purchase, but the borrowers are not eligible to lower their funding fees by using equity or making a down payment.
from MilitaryByOwner Date Unknown Understanding the VA Funding Fee https://www.military.com/money/va-loans/understanding-va-funding-fee.html