What Is A Subsequent Use VA Loan Funding Fee?
Veterans who want to use their VA home loan benefits are required to apply for a Certificate of Eligibility from the Department of Veterans Affairs. This certificate, also known as a COE, shows the lender the borrower is indeed approved to use a VA insured loan entitlement, and how much entitlement is available.
The application may be submitted online or via mail. Online applications can be filled out here.
The COE should not be confused with VA loan approval. The lender must verify that a borrower has the appropriate credit, employment and ability to pay based on a debt-to-income ratio; getting a Certificate of Eligibility from the Department of Veterans Affairs is only the first step in the process.
First-time homebuyers learn about all this in the early days of researching their VA home loan; second-time borrowers may remember most, if not all this information.
But what a second-time borrower might not realize at first is how their status affects the VA loan funding fee. Did you know second-time borrowers pay a higher VA loan funding fee for purchase loans?
A VA loan funding fee is charged every time a borrower purchases a home using a VA guaranteed mortgage, except in cases where the borrower is exempt because of disabled status, the eligibility to receive disability pay from the VA, or being a qualified surviving spouse of a veteran who died as during (or as a result of) military service as recognized by the VA. First time borrowers pay a lower VA loan funding fee than second-time borrowers.
Second-time borrowers are charged more because in the eyes of the VA, their ability to pay is greater based on a variety of factors. A first-time home buyer is typically working within a tight budget and needs extra assistance, hence a lower VA loan funding fee.
For second-time borrowers, the higher fee is called a Subsequent Use Funding Fee that, according to the VA lender’s handbook, “indicates the veteran has used their home loan benefit before, so a higher funding fee is required.”