Funding Fees

How Do They Impact Your Mortgage?

When securing a home loan, you may come across the term “funding fee.” While not all mortgages have one, understanding how funding fees work is essential, especially if you’re considering a government-backed loan such as a VA or FHA loan.

A funding fee is a one-time charge that helps offset the cost of government-backed mortgage programs. It’s designed to reduce the financial burden on taxpayers and keep these loan programs sustainable. Unlike private mortgage insurance (PMI), which applies to conventional loans with low down payments, a funding fee is paid upfront or rolled into the loan amount.

For VA loans, the funding fee varies based on factors such as military service status, down payment amount, and whether it’s your first time using a VA loan. First-time VA loan borrowers with no down payment typically pay 2.15% of the loan amount, while subsequent users may pay up to 3.3%. However, veterans receiving disability benefits may be exempt from this fee.

FHA loans also have an upfront mortgage insurance premium (UFMIP), which functions similarly to a funding fee. This fee is usually 1.75% of the loan amount and can be financed into the loan. Additionally, FHA loans require ongoing mortgage insurance premiums (MIP), which differ from the one-time funding fee associated with VA loans.

While funding fees add to the cost of borrowing, they make homeownership accessible to more buyers by eliminating the need for traditional mortgage insurance and keeping loan programs available. If you’re considering a loan with a funding fee, working with an experienced mortgage professional can help you understand your total loan costs and explore options to minimize your expenses.

If you have questions about funding fees and how they affect your mortgage, reach out to Mortgage Investors Group for expert guidance tailored to your home financing needs.