What Is The VA Funding Fee?

Military service members benefit from generous loan terms flexibility afford by a VA-backed home loan. As with anything, this loan program does have its pros and cons. One you might have questions about is the VA funding fee. If you qualify for a VA loan, you probably have questions about the VA funding fee. Borrowers pay this fee to help reduce the loan’s cost for US taxpayers, who are footing the bill for your loan. Learn more about why the mortgage lenders charge this one-time fee, how much it costs, and its impact on your loan.

Who Has to Pay the VA Funding Fee?

Using a VA loan to finance purchasing, building, renovating, or refinancing a home most likely means paying the VA funding fee. However, there are VA funding fee exemptions. Basically, you be exempt if you are:

• A veteran with a service-related disability and you do or could receive VA disability or active-duty pay
• A surviving spouse of a member who had a service-connected disability
• An active-duty service member who have received the Purple Heart may also be exempt.
• A service member eligible for compensation due to a pre-discharge claim

For widowed spouses of service members using a VA loan to purchase your home, you can get a funding fee exemption as long as they are receiving Dependency and Indemnity Compensation.

It does not matter which loan type you apply for. Home purchase loans and refinance loans all have this attached.

How to Pay the Funding Fee

Military borrowers generally have three options to pay the fee, which is due at mortgage closing. First, you can pay it with your monthly mortgage payments over time. Or, you can pay it as a lump sum upfront at the closing. Sometimes, you can negotiate with the home seller to cover this fee as a concession in your purchase agreement. Paying the VA funding fee upfront saves money over the lifetime of your loan.

How Much Does the VA Funding Fee Cost?

For starters, there are already so many costs associated with becoming a homeowner–loan origination fees, title insurance, and appraisal fees. The last thing you want is another expense with your closing costs. Think of it this way: in exchange for flexibility in your down payment, loan terms, and interest rates, you won’t have to pay private mortgage insurance or a premium.

Unfortunately, there isn’t an easy answer to figuring out how much your VA funding fee costs. It varies based on the type of loan you get (conventional loan, jumbo loan, refinance, etc.) and the loan amount. Sometimes, your down payment amount is a factor, as is whether or not you’ve used a VA-backed loan in the past. First-time VA loans have lower fees, as you haven’t used your loan entitlement yet.

The fee used to depend on your active military service role. Previously, members in the Reserves or the National Guard paid a higher funding fee amount than regular service members. As of 2020, these rules have changed so that all service members, regardless of position, pay the same amount.

Purchase Home Loan Fees

That said, a first-time borrower can expect to pay around 1.25-2.15% of your loan amount for the one-time VA funding fee. If you’ve borrowed using a VA loan before, the cost increases, often to around 1.25-3.3% of the loan amount. However, if you can make a down payment of at least 5%, the fee might not be as high. These rates are subject to change, so check with your loan officer about where the funding fee currently stands.

So, if your loan amount is $200,000, and you put down 10%, and it’s your first-time use of the program, you’ll pay a funding fee of 1.25%, or $2,500.

Refinance Loans

What if you’re a borrower looking to reduce your monthly payments? The VA backs interest rate reduction refinance loans (IRRRLs) and cash-out refinance loans. For rate reductions, the funding fee rates for veterans, active duty, and National Guard and Reserve members was 0.5% in 2024. The cash-out rates were 2.15-3.3%. These flat fees did not change based on your down payment amount.

Other VA Funding Fees

The VA backs other types of loans, too. Loan assumptions charged a 0.5% fee while manufactured home purchases charged 1%.

Find Out More About the VA Funding Fee

For eligible veterans and active duty personnel, a VA-backed loan’s flexibility could be the answer in buying or making your monthly payments more affordable. Don’t let a one-time charge discourage you from running all the numbers on this loan program.

Would you still like to find out more about the VA funding fee? The Department of Veterans Affairs is one resource to check out as it updates its funding fee rate charts. Its housing assistance arm outlines the most recent information on the VA loan funding fee.

Updated June 2024