This article is part of a broader series that explores many different aspects of the…
This article is part of a broader series that educates California home buyers and homeowners about the VA loan program. In previous articles, we have covered everything from the minimum program requirements to the kinds of documents you have to provide.
Today, we will talk about the VA loan funding fee, and who might be exempt from paying it. The short version is that most home buyers who use a VA loan in California have to pay a funding fee. But certain groups, including veterans with a service-related disability, are exempt from paying it.
For those borrowers who do have to pay this fee, it can either paid upfront or rolled into the loan and paid over time.
What Is a VA Loan?
Let’s start with a basic overview of the VA loan program itself, before we get to the funding fee requirements and exemptions.
A VA home loan is simply a mortgage loan that gets guaranteed by the federal government, under the management of the U.S. Department of Veterans Affairs.
There are three primary “players” involved in a typical VA loan scenario. There’s the borrower, the mortgage lender, and the government. The borrower applies for a loan through a mortgage lender in the private sector, as with any other types of home loan.
But what makes this program different is that the federal government gives the mortgage lender a partial guarantee that protects them from losses related to borrower default. This is a key point to understand, because it allows lenders to offer more flexible qualification criteria to borrowers.
For instance, a person who uses a VA loan to buy a home in California can do so without making a down payment or paying mortgage insurance. This combination of benefits eliminates one of the primary hurdles to homeownership—the upfront costs.
Additionally, VA loans tend to be more forgiving when it comes to credit scores, debt ratios, and other mortgage qualification checkpoints.
In California, VA loans are available to most military members with honorable service. This includes the National Guard, Reserve members, and active-duty military. But the service length requirements can vary depending on your military status.
What Is a Funding Fee?
As explained elsewhere on our website, a VA funding fee is a one-time fee that a borrower has to pay when using a VA-guaranteed mortgage loan. These fees help support the program and therefore indirectly benefit all of the borrowers who use it when buying a home.
The funding fee is generally expressed as a percentage of the total loan amount. The percentage or “rate” can vary based on the down payment (or lack thereof) and whether or not it’s your first time using the program. First-time borrowers who make a down payment below 5% typically end up paying a funding fee of 2.15%.
This fee can be rolled into the loan and paid overtime, or paid upfront. So there’s some flexibility here in terms of how and when you pay it.
With that introduction out of the way, let’s talk about the types of home buyers in California who might be exempt from paying the VA loan funding fee.
Who Is Exempt from Paying It?
Most military members and veterans in California who use a VA home loan will have to pay the aforementioned funding fee. But certain groups are exempt, meaning they do not have to pay this fee.
Specifically, the Department of Veterans Affairs identifies five types of borrowers who don’t have to pay the funding fee when using the VA loan program. You might be exempt from paying if you meet any one of the following conditions:
- You’re currently receiving compensation through the VA for a service-connected disability.
- You’re eligible to receive VA compensation due to a service-connected disability but are currently receiving retirement or active-duty pay instead.
- You’re the surviving spouse of a veteran and are currently receiving Dependency and Indemnity Compensation (DIC).
- You receive a proposed or memorandum rating before the loan closing date that says you’re eligible for compensation due to a pre-discharge claim.
- You’re a service member on active duty who, either before or on the loan closing date, provides evidence of having received the Purple Heart.
To be clear, you don’t have to meet all of these specifications. You could be exempt from the VA loan funding fee just by meeting one of the above conditions.
Where Can I Learn More?
This article covers most of the important points regarding VA loan funding fee exemptions for California home buyers. But if you’d like to learn more about the program’s requirements, you can refer to the resources below.
The Department of Veterans Affairs has a page on their website with more information about funding fees, exemptions, and other frequently asked questions.
Here’s the link for that resource:
You can also learn more about the program right here on our website. We’ve created a library of educational articles relating to VA home loan requirements, the lending process, and similar topics. A good place to start is our list of top-10 frequently asked questions about this program.
If you’re buying a home in California and plan to use a VA loan, you can also contact our staff with any questions you have. Bridgepoint Funding specializes in this program and serves borrowers all across the Golden State.
We can help you figure out if you’re eligible for the program, and whether or not you have to pay the funding fee. We can also pre-approve you for a specific loan amount, so that you can narrow your housing search to a realistic price range.