You will encounter fees with any mortgage loan you take when buying a house, but every loan type has different fee structures. With a VA loan, you must pay a funding fee to get the loan. Lenders require the funding fee with every VA loan they issue, and here are three things you should know about this fee as you begin the process of getting a VA loan.
The Purpose of this Fee
Every loan type has fees, but do you understand the purpose of the funding fee for a VA loan? When lenders issue VA loans, they have few risks because the Department of Veterans Affairs (VA) provides a backup plan to the lenders. If a borrower defaults on his mortgage loan, the VA pays the lender the money the borrower owes.
For the VA to back up all VA loans, they need a steady supply of money. The VA has a steady supply of cash from the funding fees that lenders charge when issuing these loans. Each time a lender issues a VA loan, they collect a funding fee from the borrower. The fee goes directly to the VA, and the VA uses this money to bail out lenders when borrowers default. As a result, you must pay a funding fee if you take a VA loan.
The Costs for the Fee
The funding fee cost structure has several levels. The first level is for first-time VA loans. If you get a VA loan for the first time, you pay a fee of 2.3% of the home's price. If you already had a VA loan and need another one, the rate increases to 3.6%. You can pay less than this, though, by putting down more money. If you can put 10% down when buying a house, you could pay a rate as low as 1.4%. You will always pay a fee, but the amount for the fee depends on the factors listed here.
Ways to Pay the Fee
You have two options for paying the funding fee. The first option is to pay the costs out of your pocket. If you have plenty of cash to use when buying a house, you can use this option. If you do not have enough money on hand, you can roll the fee into your loan. The result is a higher loan balance, but this option allows you to buy a house with little money.
Are you ready to apply for a mortgage loan? Do you want to use a VA loan? Talk to a lender, like the Lund Mortgage Team, today to learn more about VA loans and other options.