Fees vary depending on factors such as the nature of military service and how much down payment the veteran opts to make. However, they are typically 2.15% of the loan amount. That's not much less than the minimum down payment for an FHA loan. And VA funding fees can be as high as 3.3%. That's more than the minimum down payment for a conventional loan.
"You're looking at a couple of percentage points, which is fairly significant," says Charlie Harriman, a financial advisor with Cloud Investments in Huntsville, Ala. "You can finance it into the loan, but at the end of the day, you don't have to pay that on a conventional or FHA loan."
Another limitation is the fact the borrower must live in the property as his primary residence. Borrowers also have to pay higher fees after the first time the use VA financing.
VA tends to be more finicky about property condition, and some say the extra inspections lead to delays in closing a sale. However, Bell says that VA has digitized and streamlined its processes so that typical delays have shrunk to only a day or two.
VA borrowers can make down payments if they want to. And it may be a good idea, Harriman notes, because a bigger down payment means a lower loan balance and lower monthly payment. A down payment can also reduce the VA funding fee.
About 12% of VA borrowers choose to make down payments, Bell says. And about a third don't pay funding fees, thanks to exemptions for, among others, veterans receiving disability payments, he says.