VA issued Circular 26-21-26 on December 17, 2021 to clarify the funding fee calculation when the purchase price exceeds the reasonable value and the borrower provides a down payment.
General Information and Reminders
- The funding fee only applies when the borrower is not exempt from paying the fee
- The guidance below applies when determining the applicable funding fee percentage on a purchase transaction with a down payment
- The funding fee may be reduced when a down payment is made on a purchase transaction
- The loan amount cannot exceed the lesser of the appraised value or purchase price
- There is no change to the VA Funding Fee percentages except to clarify the < 5% bucket (previously stated “None”)
Fee Calculation
When determining the funding fee, the percentage of the down payment is calculated as a percentage of the total purchase price of the home
- This includes transactions where the purchase price exceeds the reasonable value of the property established by the appraisal
- Any amount paid by the borrower toward the purchase price, including an amount exceed the appraised value, is included in the percentage down calculation
Example #1 (First time Use and Down Payment is > 5% but < 10%)
- Purchase Price: $300,000
- Appraised Value: $290,000
- Down Payment: $18,000
- The percentage of the down payment is 6% ($18,000 divided by $300,000 = 6%)
- The percentage used for determining the funding fee is 1.65% since the down payment is > 5% but < 10% (see Funding Fee chart above)
Example #2 (First time use and Down Payment is < 5%)
- Purchase Price: $300,000
- Appraised Value: $290,000
- Original Down Payment: $0
- Maximum Loan Amount: $290,000
- Appraised Value is less than Purchase Price so Down Payment Required: $10,000
- The percentage of the down payment is 3.33% ($10,000 divided by $300,000 = 3.33%)
- The percentage used for determining the funding fee is 2.30% since the down payment is < 5% (see Funding Fee chart above)
If you have any questions, please contact your Account Executive
