Question

Which applies to the funding fee and discount points on a VA loan?

a) Funding fee is paid to the lender, while discount points reduce the interest rate
b) Funding fee is a discount on the loan, while discount points are paid to the government
c) Funding fee is paid to the government, while discount points increase the interest rate
d) Funding fee and discount points serve the same purpose in a VA loan

Answer 1

c) Funding fee is paid to the government, while discount points increase the interest rate

The correct answer is that the VA loan funding fee is paid to the government and discount points are used to reduce the interest rate. The funding fee supports the VA home loan program, while discount points are a form of prepaid interest.

Step-by-step explanation:

The correct answer to the question about the application of the funding fee and discount points on a VA loan is that the funding fee is paid to the government, while discount points reduce the interest rate. Therefore, the correct option is: (c) Funding fee is paid to the government, while discount points reduce the interest rate.

The funding fee is a one-time payment on VA loans that is paid directly to the Department of Veterans Affairs. This fee is set by the government to help offset taxpayers' cost for the VA home loan program. On the other hand, discount points are a type of prepaid interest or fees that borrowers can choose to pay to lower their mortgage interest rate. One discount point typically equals one percent of the total loan amount and can reduce the loan's interest rate, making monthly payments smaller.

Answer 2

The funding fee on a VA loan is paid to the government and is required to fund the loan program, while discount points are paid to the lender to reduce the interest rate.

Step-by-step explanation:

Among the options provided regarding a VA loan, the correct one is: c) Funding fee is paid to the government, while discount points reduce the interest rate. A funding fee is a one-time payment required on VA loans, which goes directly to the Department of Veterans Affairs. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn't require down payments or monthly mortgage insurance. On the other hand, discount points are optional fees paid at closing to the lender in exchange for a reduced interest rate. This is also known as 'buying down the rate', which can result in lower monthly mortgage payments. It's crucial to comprehend that discount points are entirely separate from the funding fee and serve the purpose of adjusting the interest rate rather than funding the administration of the VA loan program.