The VA primarily charges a funding fee for refinances, which varies based on the type of refinance and whether you've used your VA loan benefits previously. This fee is a one-time government charge that helps offset the cost to taxpayers for the VA home loan program.
Understanding VA Refinance Funding Fees
The VA funding fee is a percentage of the total loan amount. It directly contributes to the sustainability of the VA loan program, allowing it to remain available for future generations of veterans. The specific percentage charged depends on the type of VA refinance you pursue:
- VA Interest Rate Reduction Refinance Loan (IRRRL): Also known as a Streamline Refinance, this option is designed to lower your interest rate or convert an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
- VA Cash-Out Refinance: This allows you to tap into your home equity by taking out a new, larger loan than your current mortgage, receiving the difference in cash. The funding fee for a Cash-Out refinance depends on whether your existing loan was a VA loan or a non-VA loan, and if it's a subsequent use of your VA loan eligibility.
VA Refinance Funding Fee Breakdown
The following table summarizes the typical VA funding fees for different refinance scenarios:
| Refinance Type | VA Funding Fee Percentage |
|---|---|
| VA Interest Rate Reduction Refinance Loan (IRRRL) | 0.5% of the loan amount |
| VA Cash-Out (Refinancing a Non-VA Loan) | 2.15% of the loan amount |
| VA Cash-Out (Refinancing an Existing VA Loan, Subsequent Use) | 3.3% of the loan amount |
Example:
If you're getting a VA IRRRL for a $300,000 loan, your funding fee would be $1,500 ($300,000 0.005). If you're doing a VA Cash-Out refinance of an existing VA loan for $300,000, the fee would be $9,900 ($300,000 0.033).
Important Considerations for VA Refinances
While the funding fee is a direct charge from the VA, it's important to remember that it's typically rolled into your loan amount, meaning you usually don't have to pay it out of pocket at closing.
Other costs associated with a refinance, such as appraisal fees, title insurance, origination fees, and closing costs, are separate from the VA funding fee and are charged by the lender or third-party service providers, not directly by the VA.
Exemptions:
Certain veterans may be exempt from paying the VA funding fee, including:
- Veterans receiving VA compensation for a service-connected disability.
- Veterans who would be entitled to receive compensation for a service-connected disability if they were not receiving retirement or active duty pay.
- Surviving spouses of veterans who died in service or from a service-connected disability.
For more detailed information and to calculate potential fees for your specific situation, you can consult a VA refinance calculator.
