VA refinance

The VA Loan Funding Fee For Subsequent Use: A Reader Question

November 5, 2013

The VA Loan Funding Fee For Subsequent Use: A Reader Question

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A reader asks, “I am a Navy veteran. I had a VA mortgage that was paid off with a previous refinance to a conventional. I do not have a service related disability. I am looking into a refinance with cash out for home improvements.”

“Do I have to pay the highest rate of 3.3% on the funding fee or can I get the lower rate if I am not taking out more than 80% of the appraised value of the home. It is our primary residence and we plan on staying here.”

The VA loan funding fee for first-time use is lower than the fee for second-time or subsequent use. On new purchase loans, the borrower can get a reduced funding fee for making a down payment of five percent or more. However, when examining the VA loan funding fee tables for cash-out refinancing, we learn that there’s no similar provision for refinance loans:

Cash-Out Refinancing Loans

Regular Military
Percentage for first time use: 2.15%
Percentage for subsequent use: 3.3%*

National Guard/Reserves
Percentage for first time use: 2.4%
Percentage for subsequent use: 3.3%*

*The higher subsequent use fee does not apply to these types of loans if the Veteran’s only prior use of entitlement was for a manufactured home loan.

Notice that there is no fee reduction structure in this table–that’s much unlike the table for new purchase home loans which describes the amount of reduced VA loan funding fee based on the amount of down payment made.

There is no down payment requirement for a cash-out refinance loan, and the loan-to-value ratio does not affect the amount of the VA loan funding fee. The short answer to the reader’s question is that the borrower is responsible for paying the full VA loan funding fee when applying for a cash-out refinance unless that borrower is otherwise exempt from paying the funding fee.

Borrowers would be exempt from the fee if they receive or are eligible to receive VA compensation for service-connected medical conditions. For more information on VA loan funding fee exemptions, contact the VA directly by calling 1-800 827-1000.

Do you have questions about VA home loans? Ask us in the comments section.

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