How the VA Loan Funding Fee Works
How does the VA loan funding fee work? Understanding the process can be very important—how does the buyer know the funding fee has been correctly calculated and applied?
VA borrowers have little to worry about when dealing with a reputable lender, but sometimes human error creeps into the equation even at the best of times. Knowing how the process works helps the buyer avoid surprises, miscalculations (on either end of the purchase) and other issues.
VA home loan funding fees are listed on a funding fee table the lender uses as a reference. The loan officer must examine the buyer’s circumstances—active duty, Guard of Reserve; exempt or non-exempt from the fee. The type of loan is also referenced—construction loan, existing construction, refinance, etc.
There are several questions along the way the lender must answer. Is the VA loan applicant making a down payment? The amount of the VA funding fee is affected by the amount of that down payment. According to the Department of Veterans Affairs, “The down payment may come from the veteran’s own resources or borrowed funds.” But there is one exception when it comes to those borrowed funds.
Does the purchase price of the property exceed its reasonable value? In these cases the veteran must pay the difference between the purchase price and the value of the home “in cash” according to VA requirements, the borrower can’t finance that amount as part of the VA mortgage. That affects the amount of the VA funding fee as the loan amount itself is different than the sale price.
That brings us to one of the most important steps in the VA funding fee process—calculating the fee. When the funding fee is to be added to the loan, the lender must calculate the VA fee without adding the funding fee to the loan amount. In other words, a hypothetical home selling for $100,000 must have the fee calculated at that price, not the price plus the fee.
About Joe Wallace
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association.