When you take a mortgage loan to buy a house, you will have fees. The fees you pay will depend on the type of loan program you use, but all loans have fees. If you are considering a VA loan, you will have a unique expense to pay when you close on the loan. The fee is called a funding fee, and many people have questions about this expense. As you prepare to get a VA loan, here are several things to know about this funding fee.

The Main Purpose of the Funding Fee

You can find loan programs that have sponsorship by government entities, and a VA loan falls into this category. The entity that sponsors the VA loan program is the Department of Veterans Affairs (VA). When an entity sponsors a loan program, it means they guarantee it. They provide a guarantee to the lenders that lowers the risk level for lenders that issue the loans. When you get a VA loan, you will pay a funding fee. The fee goes to the VA, and they use these fees to bail out lenders when borrowers default on VA loans. Paying the funding fee keeps the VA loan program in existence for others to use in the future.

The Cost of the Funding Fee

The funding fee costs between 1.4% to 3.6% of the home purchase price. Your fee is the lowest when you meet certain criteria, such as:

• This is your first VA loan.
• You put at least 10% down on the purchase.

The rate you pay increases when you put less money down. If you have questions about the fee you must pay, ask your lender to explain it to you.

Options for Paying the Fee

The final thing to know is that you can pay the fee in two ways. First, you can pay cash for it. If you choose this option, it keeps your mortgage loan down as much as possible. The other option is rolling it into your loan. When you choose this method, you will have a higher mortgage balance from the start. The benefit, though, is that you will need less cash to buy a house.

Remember, you will have fees with any loan you choose, including a VA loan. You can compare your options before choosing the mortgage program you prefer, and you can learn more about your options by speaking with a mortgage lender.

To learn more, reach out to a VA loan provider in your area.