The VA loan program provides a complete list of rules and regulations that VA lenders must follow when evaluating a VA home loan request. The loan is approved using these established guidelines and as long as the VA lender followed the instructions correctly the loan is then eligible for the VA home loan guarantee. The guarantee is to the lender and if it is determined the VA lender approved the loan in the proper fashion should the loan ever go into default the lender is compensated for the loss. This compensation is mostly financed by the Funding Fee.
The funding fee is expressed as a percentage of the loan being applied for and can vary based upon the type of loan, usage and borrower. For example, a veteran using a VA loan to buy and finance a home for the first time, the funding fee is 2.15 percent. For a $100,000 VA loan the funding fee is $2,150 and may be paid for out of pocket by the veteran at the closing table or in most every case rolled into the loan amount. In effect, the funding fee is an insurance premium.
However, there are those that qualify for a VA loan but do not have to pay the VA funding fee because they’re exempt. If the veteran is receiving disability income from the VA due to service-related issues the funding fee requirement may be waived. Surviving spouses of veterans who died as a result of a service related injury are also exempt from the funding fee rule. The funding fee waiver request must be placed while the VA loan is being processed and the waiver documentation must be included in the file. If you feel your funding fee may be eligible for a waiver, talk to your VA lender. There’s no reason to pay the funding fee if you don’t have to.