VA reverts some funding fees to pre-2020 levels


The Department of Veterans Affairs will reduce funding fee amounts for some of the loans it guarantees, reverting them to pre-2020 levels. The move will make getting a VA loan more affordable for prospective veterans.

Starting April 7, first time users and subsequent users of the VA program will see lower fees associated with purchase, construction and cash-out refinance loans. Depending on the down payment, borrowers could see a .15% to .30% decrease on the up-front payment.

For first- time VA buyers with less than a 5% down payment, the funding fee will be 2.15%, down from 2.3%. Borrowers with a 10% down payment will have a 1.25% funding fee attached to their loan, a decrease from 1.4%, according to a circular published by the department in mid- February.

The funding fee amounts for interest rate reduction refinance loans, manufactured home loans and Native American direct loans will remain the same.

By making these changes, the department is returning the amounts to what they were before the Blue Water Navy Vietnam Veterans Act was passed. In order to finance this bill, Congress approved a two-year hike in funding fees for VA mortgages from January 2020 to April 2023.

The fees– which were instituted by Congress as a means to reduce government costs associated with administering the VA home loan benefit–  have been a controversial subject in the housing industry.

Some have argued that raising fees makes the VA program less affordable for veterans, while others have criticized the use of funding fees to finance bills and programs that have nothing to do with VA housing.

Nonetheless, the recent change will save homebuyers hundreds of dollars in up-front costs. 

Housing agencies, including the Federal Housing Administration and the Federal Housing Finance Agency, have also recently moved to implement measures that will help trim costs for borrowers.

On Wednesday, the FHA announced a long-awaited cut to its mortgage insurance premiums by 30 basis points, as a way to give homebuyers “a little room to deal with inflation.” Meanwhile, the FHFA made changes to its  risk-based pricing guidelines earlier this year to lower loan costs for some low-to moderate-income borrowers through cross-subsidies that raised for them for others. 

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