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A funding fee is a small cost associated with VA loans, which is intended to offset the costs incurred by the government. This fee helps to alleviate the taxpayer burden.
History
Administered through the U.S. Department of Veterans Affairs, the VA loan program was established by the Servicemen's Readjustment Act of 1944. It provides veterans with homes ensured by the federal government, with no down payment. To be eligible for the loan, veterans must serve for two years, while reservists and those in the National Guard must serve for six years.
Stipulations
Required to help offset the costs of the loan, the VA loan fee can be added to the loan itself and need not be paid up front. Different fees are assigned depending on the service rendered and the number of times that the loan is used.
First-Time Users
The no down payment policy requires a 2.15% fee. If there is a down payment up to 10%, then the fee is reduced to 1.25%. The fee is increased if the VA loan is used again. In this instance, the fee is as high as 3.3% with no down payment, and 1.5% with a down payment of 10%.
Reserves/National Guard
Fee are different for the reserves and National Guard. First-time users who make no down payment must pay a 2.4% fee. With a 10% down payment, the fee is calculated at 1.75%. Subsequent uses of the loan require a 3.3% fee with no down payment.
Exemptions
The exemptions to the loan are veterans receiving VA compensation for disabilities related to service, veterans entitled to compensation for service-related disabilities, and surviving spouses of veterans who died in the service.
Source:
Mortgage Loan Place.com: Va Closing Costs
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