The VA Funding Fee: What It Is and What You'll Pay in 2024

Understanding VA Interest Rate Reduction Refinance Loans (IRRRLs) If you're a military homeowner with a VA home loan, you may be able to lower your monthly payments through a VA Interest Rate Reduction Refinance Loan (IRRRL). A VA IRRRL, often called a "VA Streamline Refinance," is a simplified way for veterans to refinance their existing VA-backed home loan. This program allows you to replace your current VA loan with a new one, typically offering a lower interest rate or more stable payment terms. Below, we’ll outline the benefits you can unlock with an IRRRL, the requirements to meet before you qualify for an IRRRL, and what the process looks like to unlock these savings. Benefits of a VA IRRRL With an IRRRL, homeowners can unlock countless benefits to save money both immediately and in the long term. The primary benefit of an IRRRL is to replace your existing mortgage with one that has a lower interest rate, thus lowering your monthly mortgage payment and interest paid over the life of the loan. Unlike traditional refinances, IRRRLs require very minimal documentation, making the process move a lot quicker than a conventional refi. Homeowners can often get an IRRRL without paying any cash out of pocket by rolling closing costs and fees into the loan balance. This means you’re saving money from your first new payment. If you bought your home with a VA loan, you’re probably familiar with the VA funding fee. The good news with an IRRRL is that when you refinance, non-exempt borrowers only have to pay a 0.5% funding fee. This fee can also be added to the loan balance, meaning no money out of pocket at closing. Finally, a VA IRRRL doesn’t use any of your VA loan entitlement, ensuring that you’re set up for success if you have entitlement remaining when the time comes to buy your next home. How to Know When You’re Ready for an IRRRL Before you get an IRRRL, you need to check the three boxes outlined below to make sure that you maximize these benefits: 210 Days Since the First Payment on the Original VA Loan First and foremost, your closing date for your new loan needs to be at least 210 days after you made your first payment on the loan that you’re refinancing, and you must have made at least 6 consecutive monthly payments on that loan. These requirements are set by law to protect you from predatory lending practices. Qualify for a Rate at Least 0.5% Lower Than Your Current Rate Second, the interest rate you qualify for needs to be lower than your existing interest rate by at least 0.5%. Refinancing includes additional costs such as closing costs, title fees, and other associated charges. If the interest rate reduction is too small, the monthly savings might not be enough to recover these upfront costs in a reasonable time frame. By waiting for a 0.5% or greater rate reduction, you increase the likelihood that the savings from refinancing will recoup these costs relatively quickly. Recoup Your IRRRL Costs Within 36 Months That takes us to the final and most important requirement. To make your IRRRL worthwhile, you need to make sure you recoup these additional costs via your new, lower monthly payment in 36 months. These three requirements act in tandem with each other. Rates take a combination of economic conditions and time to drop by at least 0.5%. The more you reduce your interest rate, the faster you’ll recoup the savings unlocked with your IRRRL. With all things related to your mortgage, it’s important to work with a Loan Originator who will help you get the most out of your IRRRL and can find a solution that keeps more of your money in your pocket. That takes us right into step 1 of the IRRRL process: working with a loan originator who can guide you through your IRRRL without slamming you with unnecessary added fees. The IRRRL Process: Streamlined Refinancing Getting an IRRRL is generally simpler than a regular refinance. Below, we’ll outline the easy, 6-step process for getting an IRRRL: Find an experienced VA loan originator: By working with an experienced LO, you will ensure that you’ll receive honest and straightforward financial advice with a personalized IRRRL experience that provides terms that work best for you and you alone. Provide basic information: You'll need to certify that you previously occupied the home, but current occupancy isn't required. Skip the appraisal: In most cases, no new appraisal is needed for an IRRRL. Minimal credit checks: While the VA doesn't require a credit check, some lenders may still request one. No income verification: Unlike regular refinances, IRRRLs typically don't require income documentation. Close on your new loan: Once approved, you'll sign the new loan documents and start enjoying your lower payments. Remember, while IRRRLs are designed to be straightforward, you need to ensure that the new loan provides a tangible benefit, such as lower monthly payments or a more stable rate structure. Taking advantage of a VA IRRRL allows you to save money on your monthly mortgage payments while enjoying a simplified refinancing process. If you're interested in getting a free quote from a VA loan expert, fill out this form to get the ball rolling on your mortgage savings!

Home loans secured by the Department of Veteran Affairs, or as we prefer to call them, VA loans, are one of the best mortgage options available for prospective homebuyers. Alongside the myriad of benefits—which you can learn more about in this blog—are a few unique factors exclusive to VA loans. One of the most notable is the VA funding fee. In this blog, we'll break down what the VA funding fee is, why it exists, the varying costs associated with it, and how you might be exempt from paying it. What is the VA Funding Fee and Why Does It Exist? The VA funding fee is a one-time payment required for most VA loans. The primary purpose of this fee is to offset the cost of the VA loan program to taxpayers and ensure that it remains sustainable for future generations of military homebuyers. Here's why the VA funding fee is important: Cost Offset: It helps cover the administrative costs and potential loan defaults associated with the VA loan program, thereby minimizing the financial burden on taxpayers. Benefit Maintenance: By funding the program through these fees, the VA can continue to offer low-cost mortgages and other benefits to veterans without requiring significant federal funding. Loan Accessibility: The VA funding fee allows the VA to offer loans with competitive interest rates, no down payment, and no private mortgage insurance (PMI), making homeownership more accessible for veterans and service members. Cost May Vary With Your VA Funding Fee The cost of the VA funding fee is not a one-size-fits-all amount; it varies based on several factors, including the type of loan, the borrower's military category, the down payment amount, and whether it's the borrower's first use of the VA loan benefit. Here’s a breakdown of the VA funding fee for different scenarios: No Down Payment: First Use: 2.15% of the loan amount. Subsequent use: 3.3% of the loan amount. 5% to 9.99% Down Payment: First Use: 1.5% of the loan amount. Subsequent Use: 1.5% of the loan amount. 10% or More Down Payment: First Use: 1.25% of the loan amount. Subsequent Use: 1.25% of the loan amount. Cash-Out Refinance Loans: First Use: 2.15% of the loan amount. Subsequent Use: 3.3% of the loan amount. Interest Rate Reduction Refinance Loan (IRRRL): All Uses: 0.5% of the loan amount. It's important to note that these percentages are based on the total loan amount and can be financed into the loan, meaning you don't have to pay the fee upfront out of pocket. VA Funding Fee Exemptions Not all veterans and service members are required to pay the VA funding fee. There are several exemptions available for those who meet certain criteria: Disability Compensation: Veterans receiving VA disability compensation for a service-connected disability are exempt from paying the funding fee. This includes veterans who would be entitled to compensation if they were not receiving retirement or active duty pay. Surviving Spouses: Surviving spouses of veterans who died in service or from a service-connected disability are exempt from the funding fee. Purple Heart Recipients: Active-duty service members who have been awarded the Purple Heart are exempt from paying the funding fee, provided they close on their home while still serving on active duty. Pre-Discharge Rating: Veterans who are in the process of receiving VA compensation for a service-connected disability may also qualify for an exemption if they receive a proposed or memorandum rating before the loan closing. Loan Assumptions and IRRRLs: Loans assumed by another veteran are exempt from the fee, as well as certain IRRRLs under specific conditions. The VA funding fee is a crucial component of the VA home loan program, designed to ensure its longevity and sustainability. While it represents an additional cost, it also enables the VA to offer favorable loan terms to veterans and service members. Understanding the varying costs associated with the funding fee and the available exemptions can help you better navigate the VA loan process and make informed decisions about your home financing options.

If you served, are currently serving, or are a widower of a past service member, you have earned the right to a VA loan. Before we get started, a VA loan is a home loan benefit backed by the Department of Veteran Affairs (VA) to help you buy, build, repair, retain, or adapt a home for your own personal occupancy. VA home loans are provided by private lenders, such as banks and mortgage companies. VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms. In this blog, we'll delve into the fundamentals of VA loans, help you understand the eligibility criteria, and give you a look at the benefits that come with a VA loan. Whether you're a first-time homebuyer or looking to refinance your existing mortgage, partnering with experienced VA experts at UMortgage ensures a seamless journey toward homeownership. How Do VA Loans Work? While the VA backs VA loans, they do not provide them. Rather, eligible borrowers work with a VA-approved mortgage lender to get their VA loan. Below, we’ll give a high-level overview of the eligibility requirements and VA loan process. How to Know if You're Eligible for a VA Loan To qualify for a VA loan, veterans and active-duty service members must meet different service requirements to qualify. Military members or surviving spouses can qualify if they or their spouse served: • 90 consecutive days on active duty during wartime • 181 consecutive days on active duty during peacetime • 6 years in the National Guard or Reserves, or 90 days under Title 32 orders with at least 30 days served consecutively For full qualification guidelines, you can refer to the VA’s comprehensive eligibility requirements. How to Obtain Your Certificate of Eligibility (COE) A Certificate of Eligibility (also known as a COE) is required to qualify for a VA loan. Your COE is a formal document issued by the VA confirming that you’ve met the eligibility requirements noted above. You don’t need to obtain this document before starting your mortgage process; your UMortgage Loan Originator can obtain your COE on your behalf as you work with them to kickstart your homebuying journey. Understanding the VA Funding Fee The VA funding fee is a one-time fee paid to the VA when obtaining a VA loan. The VA funding fee helps offset the cost of the VA loan program to taxpayers in place of a down payment requirement. The amount of the funding fee varies based on your down payment amount, the type of transaction (purchase or refinance), your service branch, and whether it’s your first time using your VA loan benefits. If you're a Veteran or active-duty buyer receiving compensation for a service-connected disability or are deemed 10% or more disabled by the VA, you are exempt from paying the funding fee. Your VA Loan Benefits Explained A common misconception about VA loans is that they’re riskier and sometimes more expensive than a conventional loan. This couldn’t be further from the truth! In fact, VA loans work a lot like any other home loan but also include a plethora of benefits that help to make the homebuying process significantly easier and more affordable for Veterans and active-duty service members. Below, we’ll break down some of these key benefits: 0% Down Payment One of the biggest benefits of your VA loan benefit is the ability to purchase a home without a down payment. A down payment is often the most expensive part of the homebuying process, with conventional loans requiring at least 3% down and FHA loans requiring a minimum of 3.5%. This benefit alone can make a home purchase significantly more affordable for eligible borrowers. No VA Loan Limits The VA-backed home loan limit refers to the amount the VA guarantees, or the maximum amount paid to your lender if you default on your loan. The VA doesn't limit how much you can borrow to finance a home. This means that if you still have your COE intact, you can borrow the maximum amount that you qualify for at 100% financing. Additionally, the Federal Housing Finance Agency (FHFA) increased its county loan limits throughout the United States for borrowers with partial eligibility available. In layman's terms, this means that you are entitled to greater flexibility as a borrower throughout your journey of homeownership. To learn more specifics about how much you can qualify for, feel free to consult with your UMortgage Loan Originator. Flexible Underwriting Compared to conventional loans and other loan products, VA home loans come with incredibly flexible underwriting terms. With lower credit score requirements and no stipulations for debt-to-income ratios, qualification will be based on residual income requirements. In certain regions across the country, borrowers might qualify for tens of thousands more than they might with a conventional loan. Lower Interest Rates VA loans typically have more competitive interest rates than other loan types. Because these loans are backed by the VA, lenders have less risk associated when funding VA loans and therefore can offer lower rates than a conventional loan. No Private Mortgage Insurance Because they’re backed by the VA, VA loans don’t require mortgage insurance. In contrast, conventional loan or FHA borrowers who pay less than a 20% down payment have to pay for private mortgage insurance, which is an additional cost added to their monthly mortgage payment which can negatively impact purchase power. Capped Lender Fees & Closing Costs The VA limits lender fees to 1% of the total loan amount. Because of these capped lender fees, VA borrowers typically have lower closing costs compared to those with conventional or FHA loans. Repeat Use of VA Loan Benefits As long as you maintain your Certificate of Eligibility, your VA loan benefits are lifetime benefits that can be used more than once! Consult with your UMortgage Loan Originator to discover your buying power if you’ve already used your VA benefits to purchase a home in the past. The benefits of buying a home with a VA loan can help make the homebuying process significantly more affordable over time for eligible borrowers. For more insight into these benefits, reach out to your UMortgage VA expert! Why You Should Work With an Experienced VA Loan Originator VA loans historically prove to be the best loan product on the market with the benefits they offer borrowers. However, there are plenty of misconceptions surrounding VA loans throughout the mortgage industry which might lead many mortgage brokers and real estate agents to try and lead VA borrowers away from VA loans. UMortgage is a staunch advocate for military homeownership with leaders throughout the organization ensuring proper education on all things related to VA loans. When you work with UMortgage to purchase your home with a VA loan, you can trust that you’ll unlock a homebuying experience that puts your priorities first and possesses the knowledge necessary to utilize every benefit and get your loan closed with ease. If you’re ready to unlock your VA loan benefits, fill out this form to get your homebuying journey underway!