Understanding FHA and VA Loan Fees
A crucial part of any mortgage is knowing the fees associated with it—especially when you’re considering government-backed loans. FHA and VA loans come with fees that not only protect the lender but also ensure the long-term viability of the governmental programs. In this guide, we break down the FHA’s Upfront Mortgage Insurance Premium (UFMIP) and Annual Mortgage Insurance Premium (MIP) alongside the VA’s funding fee.
FHA Loan Fees Explained FHA loans require two types of mortgage insurance premiums: an upfront fee paid at closing and an annual premium that is paid monthly as part of your mortgage payment.
Upfront Mortgage Insurance Premium (UFMIP)
- What It Is:
The UFMIP is a one-time fee charged at closing. It’s calculated as 1.75% of the base loan amount. Many borrowers choose to finance this fee into the mortgage, reducing the need for cash at closing. - Why It Matters:
This fee helps protect lenders against potential default, making FHA loans accessible even when the borrower provides a lower down payment.
Annual Mortgage Insurance Premium (MIP)
- What It Is:
The annual MIP is assessed as a percentage of the loan amount and is divided into monthly installments. The premium rate varies based on several factors:- Loan Term: Whether your mortgage term is more than 15 years or 15 years or less.
- Loan Amount: Loans are segmented at a threshold (currently around $726,200).
- Loan-to-Value (LTV) Ratio: The premium increases as the LTV rises.
- Rate Breakdown:
While rates are subject to periodic revisions (the most recent update derived from FHA guidelines), here’s a simplified overview for typical scenarios:
FHA Loans with Terms of More Than 15 Years
| Base Loan Amount | LTV Range | Annual MIP (Approx.) |
| ≤ $726,200 | ≤ 90% | 0.50% |
| ≤ $726,200 | > 90% but ≤ 95% | 0.55% |
| ≤ $726,200 | > 95% | 0.55% |
| > $726,200 | ≤ 90% | 0.70% |
| > $726,200 | > 90% but ≤ 95% | 0.70% |
| > $726,200 | > 95% | 0.75% |
FHA Loans with Terms of Up to 15 Years
| Base Loan Amount | LTV Range | Annual MIP (Approx.) |
| ≤ $726,200 | ≤ 90% | 0.15% |
| ≤ $726,200 | > 90% | 0.40% |
| > $726,200 | ≤ 78% | 0.15% |
| > $726,200 | >78% but ≤ 90% | 0.40% |
| > $726,200 | > 90% | 0.65% |
Note: These figures are based on the latest guidance and may vary slightly for specific loans or as policy revisions occur. Always consult with your lender to get precise numbers for your situation.
VA Loan Fees Explained The VA loan program offers eligible veterans and military families attractive home financing options, one of which is the VA funding fee. This fee plays a key role in supporting the program—and it’s calculated based on your loan amount and other factors.
VA Funding Fee
- What It Is:
The VA funding fee is a one-time fee paid to the Department of Veterans Affairs. It helps offset the costs of the VA loan program and ensures future viability by covering losses that might be incurred if a loan defaults. - How It’s Calculated:
The fee rate depends on several factors, including:- First-Time vs. Subsequent Use:
- First-Time VA Loans (No Down Payment): Typically around 2.15% of the loan amount.
- Repeat Use without a Down Payment: Can rise to 3.30%.
- Down Payment:
A down payment of at least 5% can reduce the funding fee, while certain streamlined refinance programs (IRRRL) have a lower fee—typically around 0.5%. - Exemptions:
Eligible veterans with a service-connected disability, Purple Heart recipients, and certain surviving spouses can be exempt from paying this fee.
- First-Time vs. Subsequent Use:
- A Quick Look at the Numbers:
| First-time use, no down payment | 2.15% | |
| Subsequent use, no down payment | 3.30% | |
| Streamline Refinance (IRRRL) | 0.50% | |
| Eligible for fee exemption | 0% |
Important: The exact funding fee is determined based on individual factors such as service history, down payment choices, and the type of transaction. For borrowers who might qualify for a fee refund—typically those with a service-related disability—the paperwork and process should be discussed with your VA loan specialist.
Why Do These Fees Exist? Both FHA and VA fees are integral to maintaining the integrity and sustainability of their respective programs:
- For FHA Loans:
The premiums (both upfront and annual) create a safety net for lenders by mitigating the higher risk associated with low down payment loans. This allows borrowers access to financing they might not qualify for under traditional loan standards. - For VA Loans:
The VA funding fee supports the program by replenishing the funds that cover potential loan losses. This fee helps keep the program available for future veterans and service members, ensuring that the benefits remain robust and accessible.
Final Considerations When comparing loan options, make sure you factor in these fees as part of your overall cost analysis. Here are some points to keep in mind:
- Financing Options:
Both FHA UFMIP and VA funding fees can typically be financed into the loan balance. However, adding fees to your mortgage increases your monthly payments and total interest paid over the life of the loan. - Loan Comparison:
Evaluate these fees alongside interest rates, closing costs, and other factors. Sometimes a slightly higher fee is offset by more favorable terms elsewhere in the loan. - Professional Guidance:
Given that these fees and rates can change, it’s wise to discuss all options with your mortgage professional who can provide the most current data and help tailor the choice to your financial needs.
By understanding these fees and how they impact your mortgage, you stand in a better position to plan, budget, and successfully navigate your financing journey.