Funding Fee
A funding fee is a one-time charge applied to certain types of government-backed loans, such as VA (Veterans Affairs) and USDA (United States Department of Agriculture) loans. This fee is designed to offset the costs of the loan programs to taxpayers and to ensure their ongoing availability for future borrowers.
For VA loans, the funding fee varies based on factors such as:
Type of Service: Whether the borrower is active duty, a veteran, or a member of the National Guard or Reserves.
Down Payment: The amount of the down payment made, if any.
First-Time or Subsequent Use: Whether the borrower has used their VA loan benefits before.
For USDA loans, the funding fee helps support the loan program and is typically a percentage of the loan amount, payable either upfront or financed into the loan.
The funding fee reduces the need for mortgage insurance and allows these loans to offer competitive terms, such as no down payment for VA loans and low down payments for USDA loans. Borrowers may either pay the fee at closing or roll it into the total loan amount.