This regularly-scheduled sponsored Q&A column is written by Val Sotillo, Northern Virginia-based Realtor and Falls Church resident. Please submit your questions to her via email for response in future columns. Enjoy!
Question: Are funding fees on VA loans Eligible for Seller Credits?
Answer: Loans guaranteed by the Department of Veterans Affairs are known as VA loans and provide current and former Service members with an opportunity to purchase a home with as little as 0% down.
In addition to the normal closing costs (title fees, transfer taxes, etc), a funding fee is charged at settlement, which is equal to anywhere from 1.25-3.3% of the loan amount, depending on size of down payment, type of service and whether or not it’s the borrower’s first time using the VA loan program. It’s a fee paid to the VA on every loan to offset the cost of loans that default (similar to Mortgage Insurance on non-VA loans).
Disabled veterans are eligible to have the entire fee waived.
Buyers can negotiate for seller credits to reduce or eliminate the out-of-pocket expense of closing costs at settlement. Fortunately, the funding fee falls into this category, along with the rest of the standard closing costs associated with a VA loan, and buyers are eligible to have all of these costs covered by the seller.
In theory, if a buyer is able to negotiate 100% of closing costs paid by the seller and chooses a 0% down payment loan, a home can be purchased cash-free.
If the buyer is unable to negotiate seller credits to cover the funding fee, they’re also allowed to roll the funding fee into the mortgage so that it becomes part of their monthly payment.
Did You Know?
I spoke with Myles Wilson, Private Mortgage Banker with Wells Fargo Home Mortgage, and he provided a list of things most veterans don’t know about VA home loans:
- Most people think a VA loan max is $454,150, when actually financing is available up to $1,500,000.
- It is a myth that you can use your VA entitlement option once and only to purchase your first home. If you purchased a home with a VA loan, you can sell it and pay off the VA loan completely, and you can re-use your benefit to buy another home. Your entitlement is restored in full.
- Most people think you cannot assume a VA loan. They are 100% assumable for veterans and non-veterans if qualified.
- Borrowers are not limited to fixed rates only. Wells Fargo provides 5/1 arms and various fixed options.
- VA loans are available for the purchase of condos, planned unit developments, manufactured homes and 2-4 unit properties.
- Many think active duty or deployed service members cannot use their VA benefit. Many depending on length of service are eligible for entitlement.
- Reserves and National Guard are eligible as well, their funding fee is slightly higher at 2.4% compared to 2.15% for regular military.
Advantages Of VA Loans
- In the D.C. metro area, borrowers are eligible for up to 100% financing up to $679,650. They can even go higher than this by simply paying 25% of the difference between the purchase price and $679,650.
- There is no mortgage insurance on VA loans regardless of down payment.
- Qualifying veterans can buy a one million dollar house with $80,000 down payment and no mortgage insurance.
- VA loans typically have lower interest rates than conventional loans.
- If the borrower is more than 10% disabled the 2.15% funding fee is waived.
- Once you have earned eligibility for the VA home loan, it never goes away. Those who served 20, 30, even 50 years ago often wonder whether they can still buy a home today if they never used their benefit. If eligibility can be established, the answer is yes.
- On average, buyers using a VA loan negotiated 2.3% off the original asking price. By comparison, buyers using a Conventional loan negotiated 2.2% off the original asking price and cash buyers negotiated 4% off the original asking price.
If you would like to discuss your home mortgage options, I highly recommend you reach out to Myles Wilson at [email protected]. Thank you for the great information, Myles!
In anticipation of Veterans Day, we would like to honor all veterans for their dedicated and loyal service to this country.
If you’d like a question answered in my weekly column, please send an email to [email protected]. I hope to hear from you soon!
Val Sotillo is a licensed Realtor in Virginia, Washington D.C., and Maryland with Real Living At Home, 2420 Wilson Blvd #101 Arlington, VA 22201, 703-390-9460.