The VA Funding Fee on Assumptions

What the funding fee is

The VA funding fee is a one-time charge the VA collects on most VA loans. It exists to help fund the loan guaranty program, which is part of why VA loans require no down payment and carry no ongoing mortgage insurance.

Assumptions carry a funding fee too, and this is the good news in the arithmetic: the fee on an assumption is set substantially lower than the fee on a new VA purchase loan. A first-time VA purchase can carry a funding fee of a few percent of the loan amount depending on down payment and prior use. The assumption fee is a fraction of that, calculated on the balance being assumed.

Who pays it

The buyer assuming the loan normally pays it, though as with most closing costs, who ultimately bears it is negotiable between buyer and seller as part of the purchase agreement.

The fee is calculated on the remaining loan balance, not the sale price. On a home selling for $500,000 with $300,000 remaining on the loan, the fee is figured on the $300,000.

Who is exempt

The VA exempts certain borrowers from the funding fee entirely. The exemptions generally include:

• Veterans receiving VA compensation for a service-connected disability
• Veterans who would be entitled to that compensation but for receiving retirement or active duty pay
• Surviving spouses of veterans who died in service or from a service-connected disability

Exemption status is determined by the VA, not by the servicer or the seller, and it is worth confirming rather than assuming. A buyer who qualifies for an exemption and does not claim it pays a fee they did not owe.

Note that exemption is about the buyer assuming the loan. A seller's exemption on the original loan does not carry over to the person taking it on.

What else gets charged

The funding fee is not the only cost, but the list is shorter than a new loan would produce.

| Charge | Notes | | --- | --- | | VA funding fee for assumptions | Calculated on the balance assumed; exemptions apply | | Servicer processing charge | VA regulation caps what a servicer may charge on a VA loan | | Credit report cost | Passed through as an actual cost | | Title, escrow, recording | Ordinary purchase costs, as in any sale | | Appraisal | Generally not required for the assumption itself |

What is absent matters as much as what is present. There is no origination fee, no discount points, and no new mortgage insurance, because no new loan is being written. That is a meaningful saving relative to financing the same purchase conventionally.

The number that dwarfs all of them

None of the above is the largest figure in the transaction. The assumption gap is. The assumed loan covers its remaining balance, and the buyer pays the difference between that balance and the sale price separately, typically in cash.

On a home that has appreciated since the seller bought it, that gap routinely runs into six figures, which puts every fee on this page into perspective. How much cash do I need works through it, and costs and fees when you assume a loan covers the full closing picture.

Confirming current figures

Funding fee percentages, exemption categories, and the cap on servicer charges are set by the VA and by federal regulation, and they change. Current figures are published by the VA home loan program, and the servicer handling a specific loan will quote what that assumption actually costs.

The savings calculator compares the payment difference an inherited rate produces, which is the other side of the same decision.