By Douglas Katz – 02/21/23
The VA Home Loan is one of the best programs available for eligible home buyers. It provides a low down payment options with flexible guidelines and rates that typically beat the similar conventional options. The one thing that impacts a lot of VA borrowers, however, is the VA Funding Fee that is charged on all VA loans save those which are exempt. Exempt loans include such things as mortgages for veterans with a disability rating of 10% or greater. For most others, including active duty, the VA Funding Fee can sometimes weaken the benefit of the VA loan program.
The good news for 2023 is that the VA Funding Fee has been reduced across the board. I have provided the circular published by VA for you reference as well as a link to the more detailed explanation that you can access if you are prone to masochistic behavior.
In some cases, the reduction is substantial. Take Subsequent Use at less than 5%. The reduction from 2022 to 2023 is 0.3%, but a fraction of a percent means a lot when purchasing a property. On a $400,000 property, for example, the savings in 2023 would be $1,200. When applied to larger loan amounts, which are becoming more frequent with the elimination of the cap for most VA loans, the savings can be even more substantial. For many of my clients, especially those dealing with divorce, this is not a minor benefit. In tight financial situations, every dollar counts and this gives some relief.
As an aside, I recommend that all of my veteran clients ensure that they explore their disability eligibility if they have not already. Veterans with at least 10% disability get the ultimate reduction and do not pay the fee. Often times, veterans are reticent to seek their benefits out of the perception it makes them look weak, they have been denied or they not aware of this savings and do not explore the options. There are free resources available for those looking for assistance, so I am not talking about law firms that take a fee. Additionally, there are circumstances under which assumed conditions, such as respiratory problems from burn pits, that are merely signing up and verifying your service history.
Whether you are just saving money from the new fee structure or you can eliminate the fee completely, it is important that veterans and active duty military know of and use every benefit available, especially when buying a home.