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California VA Loan Funding Fees, Explained
This article explains VA loan funding fees in California, how they work, and how much you might end up paying if you use this program to finance your home. These fees can range from 2.3% to 3.6% of the loan amount, but some veterans don’t have to pay them.
The VA loan program is a popular mortgage option among military members and veterans in California. And why wouldn’t be? This program allows eligible borrowers to buy a house with no money down and no mortgage insurance. Those are two powerful benefits you just won’t find with other mainstream mortgage products.
VA Funding Fees in California Explained
As with most types of home loans, there are certain fees and costs associated with VA mortgages in California. The funding fee is one of them. Borrowers who use this program to buy a home also encounter closing costs, but that’s the subject of another article. For now, let’s focus on California VA loan funding fees and how they might affect you.
Here’s how the Department of Veterans Affairs defines it:
“The VA funding fee is a one-time payment that the Veteran, service member, or survivor pays on a … home loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance.”
There are some important pieces to the above quote:
- For instance, you’ll notice they describe it as a one-time payment, instead of a recurring payment. That’s a key point to understand. If you use a VA loan to buy a home in California, you’ll only have to pay the funding fee once.
- This quote also explains the reason for it. The Department of Veterans Affairs charges a VA loan funding fee to help fund the program. The government partially insures these loans, and that insurance coverage costs money. The funding fee is one of the ways the VA covers their own operating costs, which in turn allows them to keep the program going.
- Lastly, they mentioned that this mortgage program does not require a down payment or monthly mortgage insurance. That’s a huge benefit, from a borrower’s standpoint. And the VA funding fee is partly what makes it possible.
The bottom line here is that without California VA loan funding fees, this beneficial program would probably cease to exist. There’s a valid reason behind it.
How Much Do They Cost?
Let’s move on to what you really want to know. How much are VA loan funding fees in California? There are several factors that will determine the size of your funding fee.
The most important factors are:
- The type of loan being used (e.g., purchase vs. refinance)
- The total amount of money you are borrowing
- The size of your down payment (if any)
- Whether or not you’ve used the VA program in the past
In California, these funding fees can range from 2.3% to 3.6% of the total loan amount for home buyers. There’s a range (instead of one standardized fee) because of the variables listed above. For instance, borrowers who make a down payment of some kind tend to have lower funding fees than those who use the zero-down option.
The table below was adapted from the Department of Veterans Affairs website. This quick-reference guide shows how much you might have to pay for a VA loan funding fee in California, in a home-buying scenario. A lot of it depends on (A) whether you’ve used the program before and (B) whether or not you’re making a down payment.
|If your down payment is…||Your VA funding fee will be…|
|First use||Less than 5%||2.3%|
|5% or more||1.65%|
|10% or more||1.4%|
|After first use||Less than 5%||3.6%|
|5% or more||1.65%|
|10% or more||1.4%|
Note: Some home buyers and borrowers are exempt from paying these fees. This includes those who are receiving compensation for a service-related disability, among others.
Example Fee Scenarios for Home Buyers
Here are some home-buying scenarios to show how VA loan funding fees work in California. These examples are based on the table above.
- A borrower who uses the VA loan for the very first time — and wants to put zero money down — will have a fee of 2.3%.
- A first-time VA loan borrower who plans to make a down payment of 5% or more when buying a home will have a fee of 1.65%.
- A repeat home buyer who has used this program in the past and plans to put zero down will have a fee equal to 3.6% of the loan amount.
You get the idea. The table above is fairly straightforward. Just note that this table applies to home purchase and construction loans, in particular. Other financing options offered through the VA (such as the Interest Rate Reduction Refinancing Loans) have their own set of funding fees.
The good news is that California VA funding fees can be “rolled into” the loan and paid off over time. Or they can be paid upfront, at the time of closing. So there’s some flexibility here.