What is a VA Loan Processing Fee?
If you’re a veteran or active duty military member looking for financing options for your home purchase, then you should consider a VA loan. VA loans offer low interest rates, no down payment requirements, and lower closing costs than traditional mortgages. However, there is one cost that you should be aware of before applying for a VA loan – the VA loan processing fee.
The VA loan processing fee, also known as the VA funding fee, is a one-time fee that is paid by the borrower to the Department of Veterans Affairs (VA). The fee is used to help offset the cost of the VA loan program and is required for all VA home loans unless you are exempt due to a service-related disability.
Why Do I Have to Pay a VA Loan Processing Fee?
The VA loan processing fee is used to help finance the VA loan program. The VA loan program is a benefit provided to eligible veterans and active duty military members, and it is designed to help make home ownership more affordable and accessible. By paying the processing fee, you are helping to keep the VA loan program sustainable and available for future generations of veterans and military members.
How Much is the VA Loan Processing Fee?
The amount of the VA loan processing fee depends on a variety of factors, such as the type of loan, the down payment amount, and whether you are a first-time or repeat VA loan user. The fee can range from 1.4% to 3.6% of the loan amount, and it is typically added to the loan balance rather than paid out of pocket.
Who is Exempt from the VA Loan Processing Fee?
Some veterans and military members may be exempt from paying the VA loan processing fee. If you have a service-connected disability rating of at least 10%, then you are exempt from paying the fee. Surviving spouses of veterans who died in service or as a result of a service-connected disability are also exempt. Additionally, if you are entitled to receive compensation for a service-connected disability but you are receiving retirement or active duty pay instead, then you may be eligible for a reduced processing fee.
When is the VA Loan Processing Fee Paid?
The VA loan processing fee is typically paid at the time of closing, along with any other closing costs and fees. However, some borrowers may be able to wrap the fee into their loan amount rather than paying it out of pocket.
Can the VA Loan Processing Fee be Waived?
In some cases, the VA loan processing fee may be waived. For example, if you are a veteran who is receiving compensation for a service-connected disability and you are applying for a VA loan to modify your home to accommodate your disability, then the processing fee may be waived. However, waivers are not automatic and must be requested by the borrower.
Is the VA Loan Processing Fee Tax Deductible?
Yes, the VA loan processing fee may be tax deductible. The fee is considered a “prepaid interest” and can be deducted on your federal income taxes, subject to certain limitations. Consult a tax professional for more information.
VA Loan Processing Fee Table
VA Loan Type |
First-Time Use |
Subsequent Use |
Down Payment |
Processing Fee |
|---|---|---|---|---|
Purchase or Construction Loan |
2.3% |
3.6% |
N/A |
Varies based on loan amount |
Refinance Loan |
2.3% |
3.6% |
N/A |
Varies based on loan amount |
VA Loan Assumption |
Not Applicable |
Not Applicable |
N/A |
0.5% |
VA Loan Processing Fee FAQs
1. Is the VA loan processing fee required?
Yes, the VA loan processing fee is required for all VA home loans unless you are exempt due to a service-connected disability.
2. Can I pay the VA loan processing fee out of pocket?
Yes, you can pay the VA loan processing fee out of pocket if you prefer. However, most borrowers choose to wrap the fee into their loan amount so they don’t have to pay it upfront.
3. How is the VA loan processing fee calculated?
The VA loan processing fee is calculated as a percentage of the loan amount and can vary depending on the type of loan, the down payment amount, and whether you are a first-time or repeat VA loan user.
4. Can I get a refund of the VA loan processing fee?
No, the VA loan processing fee is non-refundable except in very limited circumstances, such as if the borrower was charged an incorrect fee amount.
5. What happens if I don’t pay the VA loan processing fee?
If you don’t pay the VA loan processing fee, your loan application will not be processed, and you will not be able to secure financing for your home purchase.
6. Can I get the VA loan processing fee waived?
In some cases, the VA loan processing fee may be waived, such as if you are a veteran who is receiving compensation for a service-connected disability and you are applying for a VA loan to modify your home to accommodate your disability.
7. Is the VA loan processing fee tax deductible?
Yes, the VA loan processing fee may be tax deductible as prepaid interest. Consult a tax professional for more information.
8. How is the VA loan processing fee paid?
The VA loan processing fee is typically paid at the time of closing, along with any other closing costs and fees. However, some borrowers may be able to wrap the fee into their loan amount rather than paying it out of pocket.
9. How often do I have to pay the VA loan processing fee?
The VA loan processing fee is a one-time fee that is paid at the time of closing, unless you are refinancing your VA loan or assuming someone else’s VA loan.
10. How much can I expect to pay for the VA loan processing fee?
The amount of the VA loan processing fee depends on a variety of factors, such as the type of loan, the down payment amount, and whether you are a first-time or repeat VA loan user. The fee can range from 1.4% to 3.6% of the loan amount.
11. Are there any other fees associated with VA loans?
Yes, there are other fees associated with VA loans, such as appraisal fees, title search and insurance fees, and recording fees. However, VA loans typically have lower closing costs than traditional mortgages.
12. How can I apply for a VA loan?
You can apply for a VA loan through a VA-approved lender. You will need to provide documentation of your eligibility for the VA loan program, such as your Certificate of Eligibility.
13. What are some tips for reducing the VA loan processing fee?
You may be able to reduce your VA loan processing fee by making a larger down payment, using your VA loan entitlement for the first time, or choosing a shorter loan term. Consult with a VA-approved lender to explore your options for reducing the fee.
Conclusion
If you’re a veteran or active duty military member in the market for a home purchase, then a VA loan may be a great option for you. However, it’s important to understand the costs associated with VA loans, including the VA loan processing fee. By knowing what the fee is, how it works, and what your options are for paying it, you can make an informed decision about whether a VA loan is right for you.
At the end of the day, the VA loan processing fee is a small price to pay for the benefits and opportunities that the VA loan program can provide. So, if you’re eligible for a VA loan, don’t let the processing fee deter you from exploring this great financing option.
Closing Disclaimer
The information in this article is intended for informational purposes only and should not be construed as legal, financial, or tax advice. Please consult with a qualified professional before making any decisions regarding your VA loan or other financial matters.