Question: Are Funding Fees on VA loans eligible for seller credits?
Answer: Loans guaranteed by the Department of Veterans Affairs are known as VA Loans and provide current and former Service members with an opportunity to purchase a home with as little as 0% down. In addition to the normal closing costs (title fees, transfer taxes, etc), a Funding Fee is charged at settlement, which is equal to anywhere from 1.25-3.3% of the loan amount, depending on the size of down payment, type of service, and whether or not it’s the borrower’s first time using the VA loan program. It’s a fee paid to the VA on every loan to offset the cost of loans that default (similar to Mortgage Insurance on non-VA loans). Disabled veterans are eligible to have the entire fee waived.
In a previous column, I explained how buyers can negotiate for seller credits to reduce or eliminate the out-of-pocket expense of closing costs at settlement. Fortunately, the Funding Fee falls into this category, along with the rest of the standard closing costs associated with a VA loan, and buyers are eligible to have all of these costs covered by the seller. In theory, if a buyer can negotiate 100% of closing costs paid by the seller and chooses a 0% down payment loan, a home can be purchased cash-free.
If you’re unable to negotiate seller credits to cover the Funding Fee and are concerned about having the cash to pay for closing costs, you’re also allowed to roll the Funding Fee into your mortgage so that it becomes part of your monthly payment.
Some other facts about VA Loans you may not know:
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Financing is available up to $1,500,000 just not at 0% down
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You can use your VA entitlement more than once
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VA loans are assumable (can transfer from seller to buyer at seller’s rates) which is a big deal in today’s market because rates have been increasing steadily
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Adjustable Rate Mortgages (ARMs) are also available, not just fixed-rate
Arlington Veterans Affairs (VA) loans by the numbers:
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In 2017, 261 of 3,130 buyers (8.3%) used a VA loan. By comparison, 2,173 used a Conventional loan (69.4%).
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The average purchase price for homes purchased using a VA loan was just over $615,751
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38% of VA loans were used to purchase a condo, 29% to purchase a townhouse, and 33% to purchase a single-family home
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On average, buyers using a VA loan negotiated 2.3% off the original asking price. By comparison, buyers using a Conventional loan negotiated 2.2% off the original asking price and cash buyers negotiated 4% off the original asking price.
I hope the veterans and active-duty military readers had a great Veterans Day Weekend. Thank you for your service!
