By Mike Miles
Those who are eligible for VA (Veteran Affairs) loans certainly deserve the benefits that are associated. The benefits include things like limitations on borrower’s closing costs, no mortgage insurance, lowered credit qualifying guidelines, lower rates and no down payment … plus many more. It’s easy to see why these loans can be the preferred choice for those who have it as an option.
There is one potential downside to the loan. It’s the funding fee. What is this fee? It’s a fee, in the form of a percentage that is applied to every VA home loan (unless a borrower is exempt). The proceeds from this fee go directly to the VA to help keep the loan guarantee program running. Additionally, it helps offset any losses the VA takes by issuing loan guarantees. The purpose of the guaranty is to help encourage lenders to issue VA loans by protecting those same lenders of losses sustained in events of foreclosures.
Here is a chart to identify how the VA funding fee is calculated:
Not every eligible borrower has to pay a funding fee. There are two ways a borrower is exempt:
- A veteran receiving disability payments from service-related medical issues
- A borrower is a surviving spouse of those who died in service or from service-related disabilities
It’s important to note that the funding fee can be added to the loan amount. Almost every single VA loan issued has borrowers choosing to finance the fee instead of a borrower paying it in cash. It can be financed even if there is no down payment.
If you think you’re eligible for a VA loan, it’s worth doing a quick consultation to compare it to other loan options available. Despite the potential funding fee, it’s still a loan option that will most likely beat out any other loan.
A word of caution … using large lenders that pay millions to advertise these loans will have decreased benefits associated with rates and costs. It’s not abnormal for us to beat those large banks by at least .5 percent on the rate. Sounds crazy doesn’t it?
This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.
Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268