VA Mortgages Will Get Cheaper

VA Mortgages Will Get Cheaper In April, Just In Time For Homebuying Season

Some mortgages backed by the U.S. Department of Veterans Affairs (VA) will cost a little less this spring, thanks to a reduction in one of the mandatory closing costs.

Beginning on April 7, the VA funding fee—a required fee for nearly all VA-backed loans, including purchase and refinance loans—will decrease. The reduction in cost depends on the down payment amount, the mortgage type and whether you have used a VA loan before. Borrowers may see between a .15% to .30% cut on the upfront payment.

For instance, first-time users of VA loans putting down less than 5% will see their funding fee drop from 2.3% of the total loan amount to 2.15%. If these home buyers were to take out a $400,000 mortgage, they would pay $8,600 for the new funding fee, rather than $9,200—a $600 savings.

This fee reduction will stay in effect until November 14, 2031.

Type of Buyer Down Payment Amount VA Funding Fee Before April 7, 2023 VA Funding Fee After April 7, 2023
First-time buyer with a VA-backed loan Less than 5% 2.3% 2.15%
5% or more 1.65% 1.5%
10% or more 1.4% 1.25%
Repeat buyer with a VA-backed loan Less than 5% 3.6% 3.3%
5% or more 1.65% 1.5%
10% or more 1.4% 1.25%
Source: Department of Veterans Affairs

Chris Birk, vice president of mortgage insight at Veterans United Home Loans, says the reduction in VA funding fees will positively affect hundreds of thousands of veteran and military home buyers in 2023 alone.

“While this year will likely see a decline in purchase lending, these reduced fees will still help veterans and military families save more than $200 million over the life of their loans,” Birk says.

In 2022, the VA guaranteed more than 410,000 purchase loans, with an average loan amount of $373,375.

Not All VA Borrowers Have To Pay A Funding Fee

There are some VA borrowers who are exempt from paying the funding fee, which can save you a small bundle at closing. If you meet specific requirements, this fee is waived or can be refunded if your status changes after you pay the fee.

Borrowers who meet the following criteria are exempt from paying the loan funding fee:

Anyone eligible for or receiving compensation from the VA for a service-connected disability

Anyone who’s eligible for VA disability compensation but who is receiving retirement or active-duty pay instead

Surviving spouses of veterans who are eligible for or receiving dependency and indemnity compensation

Service members with a proposed or memorandum rating received before the closing date of the mortgage, asserting they are eligible for compensation for a pre-discharge claim

Active-duty service members who have received the Purple Heart

If you were awarded retroactive VA compensation for a service-connected disability after the loan close, you may be eligible to get a refund for the funding fee.

How to Apply for a VA Loan. VA loans attract prospective homebuyers because they require low or no down payments. While the VA backs these loans, it doesn’t issue them, so down payment requirements may vary by lender.

Eligibility requirements are set by the VA, though. To qualify for a VA loan, you must first get a certificate of eligibility. If you have any questions about your eligibility or about buying or refinancing a mortgage with a VA loan, you can contact the VA housing assistance program.

Not all lenders offer VA loans, so you may have to shop around. Additionally, interest rates and borrower requirements, such as minimum credit score and down payment amount, are likely to differ among lenders.

By Natalie Campisi, Caren Weiner, Forbes Advisor Staff.

Call Scott Underwood at (205) 908-2993 Birmingham or (888) 220-0393 Statewide or email Scott@ReverseMortgageAlabama.com for information on how you can use a Reverse Mortgage purchase to a home or a traditional Conventional, FHA, VA, USDA, or Jumbo mortgage. We can give you local service and great rates because we are the lender. No middle-man.