On August 3rd, the Restoring GI Bill Fairness Act of 2011 became law and reduced the VA Funding Fee for loans closed on or after October 1st.
The fee is significantly lowered for all first time & subsequent use purchases as well as cash-out refinances. It is also going to be lowered again in 2012 & 2013 for subsequent use purchases with less than 5% down.
Here’s a summary of the changes:
First Time Use (Active Duty – National Guard & Reserves add 0.25%)
- No Down Payment: Reduced from 2.15% to 1.40%
- 5% Down or More: Reduced from 1.50% to 0.75%
- 10% Down or More: Reduced from 1.25% to 0.50%
Subsequent Use (Less than 5% Down – Active Duty/Guard/Reserves)
- As of 10/1/11: Reduced from 3.30% to 2.80%
- As of 10/1/12: Reduced from 2.80% to 2.15%
- As of 10/1/13: Reduced from 2.15% to 1.25%
Note: With 5% down or more, the first time use rates apply
Remember, if you have a VA disability rating of 10% or more, you can have the VA funding fee waived. If not, the funding fee does not need to be paid out of your pocket, it can be rolled into your loan amount.
Aloha veterans and thank you for your service!
One of the main reasons we started HawaiiVALoans.com was that we found that there were so many misconceptions about VA Loans. Whether it was the broker/lender giving the wrong information or Veterans finding outdated information from non-reliable websites – it was evident that for whatever reason, the facts about VA Loans were getting distorted.
Over the years – we’ve heard it all. I thought it would be a good idea to debunk the 5 most common myths we’ve heard about VA Loans:
1. “I can only use my VA Loan eligibility once”
This is by far the most common myth we hear – but this is definitely false. There is no limit on the number of times you can use a VA Loan. Now if you’ve had a VA loan previously, you need to have had your entitlement restored by paying off the mortgage (pay off balance, sell the property, refinancing into a conventional mortgage) in order to get another VA Loan. There is a possibility in which you could have more than one VA Loan outstanding at a time – but only if you didn’t use your entire entitlement on the purchase of the first property. Now if you’ve already used a VA Loan previously, you just have to keep in mind that the cost of the VA funding fee is increased from 2.15% to 3.3% (no down payment) for every subsequent use of a VA Loan. If you’ve accumulated equity on the sale of your first home, and you can put a 5% down payment the next time, your funding fee can be reduced from 3.3% to 1.5%.
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In our last post I wrote about how on conventional mortgages, a borrower not putting at least 20% down is required to pay for Private Mortgage Insurance (PMI). The cost of PMI will increase the borrowers monthly payments an average pf $150 – $400 per month depending on the loan amount and down payment.
We also discussed how with VA loans, the home buyer is not required to pay for this PMI since the VA Department serves as the insurance backer on these loans. So how does the VA Department insure all these VA loans without being a burden on the US taxpayers? They do this by charging a VA Funding Fee.
The VA Funding Fee is a one time upfront cost that the VA Department charges the borrower on every VA transaction. This fee is collected and pooled into a fund that is used to repay any losses (up to 25% of the original loan amount) that the mortgage lender has incurred when VA loan goes into default and lender has to either short sell or foreclose on the property.
How Much Does the VA Funding Fee Cost?
The cost of the VA Funding Fee depends on three main factors:
- Whether the borrower is/was a member of the regular military (Army, Navy, Marines, Air Force, etc.) or if they were/are a member of the Reserves or National Guard.
- If the borrower is a first-time user of the VA Home Loan Program or a repeat user.
- The amount of down payment (if any).
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3 Minute Thursdays: 3 Options When Your Appraised Value is Low
VA Funding Fee Changes – Or Not!