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VA Funding Fee – Everything You Need to Know

What you'll learn:Do VA loans have closing costs? Discover the answers to these questions and more

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Updated April 7, 2023

VA Funding Fee – Everything You Need to Know

If you’re a past or current member of the military considering a Veterans Affairs (VA) loan, you may already be aware of the many benefits of this special mortgage option.

VA loans come with unique costs that are important to weigh. One is the VA Funding fee. In this article, we’ll break down everything you need to know – so you can make sure the benefits of the VA loan outweigh the costs for your unique situation.

First: Why get a VA loan?

Imagine getting into a home with no money down. Or securing a lender’s best interest rate even though your credit is less than perfect. And not having to pay mortgage insurance even though your equity is below 20 percent.

These situations aren’t available to most Americans. But thanks to the government-backed VA home loan program, eligible veterans, service members, and surviving spouses have access to special terms to buy, build, improve, or refinance a home.

Discover more benefits with 10 Reasons Why You Should Get a VA Loan.

What is a VA funding fee?

The VA funding fee isn’t like other mortgage fees or closing costs. Because VA loans are backed by the government, U.S. taxpayers provide the funding for them. The VA funding fee helps lower the cost of the loan to taxpayers. It’s also what allows the VA to offer such attractive advantages.

How much is the VA loan funding fee?

Practically speaking, the VA funding fee is a one-time payment, either paid upfront or rolled into monthly mortgage payments. The amount of the fee is based on multiple factors:

Total loan amount
Type of loan
Down payment amount
Whether this is your first or a subsequent VA loan

As you can see in the following charts, funding fees are calculated using different factors based on the VA loan type. Note the percentages are based on the total loan amount.

VA Purchase and Construction Loans

	Down Payment	VA Funding Fee
First Use	Less than 5%	2.15%
	5% or more	1.5%
	10% or more	1.25%
After First Use	Less than 5%	3.3%
	5% or more	1.5%
	10% or more	1.25%

VA Cash-Out Refinancing Loans

	VA Funding Fee
First Use	2.15%
After First Use	3.3%

Native American Direct Loan (NADL)

Type of Use	VA Funding Fee
Purchase	1.25%
Refinance	0.5%

Other VA Loan Types

Loan Type	VA Funding Fee
Interest Rate Reduction Refinancing Loan (IRRRL)	0.5%
Manufactured Home Loan (not permanently affixed)	1%
Loan Assumptions	0.5%
Native American Direct Loan (Non-IRRRL)	1.25%

Rate charts are provided by the VA and were effective April 1, 2023, based on Public Law 116-23. Visit va.gov for the most complete and updated information.

How do I pay the VA funding fee?

Funding fees can be paid as follows:

In full at closing: The entire funding fee is paid upfront with closing costs.

Paying in full reduces your monthly mortgage payments and how much you’ll pay in interest over time, but it will significantly add to your amount due at closing. Work with your lender to understand which option is best for you.

Can I avoid the VA funding fee?

Nearly all VA purchase loans and refinances require a funding fee. However, there are some situations where it can be waived or reimbursed.

You may be exempt from the VA funding fee if any of the following are true:

You’re eligible to receive, or are currently receiving, compensation for a service‑connected disability
You’re an active-duty service member who received the Purple Heart
You’re the surviving spouse of a veteran who died while serving or from a service related disability

To see the most up-to-date exemption requirements, consult VA.gov.

There is also the option to negotiate for the seller to pay your VA funding fee. We recommend working with your real estate agent to decide how to approach negotiations.

Will I still pay closing costs?

Mortgage closing costs can include various servicing fees and prepaid home costs (such as insurance and taxes). The good news is that although VA loans have closing costs, the seller is required to pay some of them.

The following closing costs are paid by the seller:

Real estate agent commission
Brokerage fee
Buyer broker fee

The remaining VA closing costs can be negotiated between the buyer and seller. Some of those include:

VA funding fee
Loan origination fee
Loan discount points
Credit report
VA appraisal fee
Hazard insurance and real estate taxes
State and local taxes
Title insurance
Recording fees
Termite report

You can ask the seller to pay up to 4 percent of the total home loan in expenses beyond those they are required to pay. These are called seller concessions.

VA vs conventional loan: Which is better?

Comparing different mortgage types can take time when they each have different benefits, requirements, and costs. If you meet the eligibility requirements, a VA loan is a good place to start. But if you’re looking to purchase a second home or investment property, you’ll likely have to use a conventional mortgage. Your individual situation will guide which option is best for you.

Take a deep dive of a VA loan compared to a conventional loan.

Is a VA loan right for you?

Disclosures

¹Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 30_YEAR_FIXED_VA_ADVANTAGE_POINT discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

^*Prime Rate is RV Prime Rate % as of Boat Prime Effective Date . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than 1020 ELOC OO CLTV 70 Rate % for primary residences and second homes.

Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than 1020 ELOC OO CLTV 70 Rate % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

Mobile homes
Co-ops or time-shares
Properties that are currently listed on the market for sale
Commercial property or property used for commercial purposes, even if a residence is part of the property
Undeveloped property (land only)
Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

Additional limitations may apply

Home Equity Line of Credit:

This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
If only minimum payments are made during the draw period, the loan balance will not decrease.
In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
Property type of Condo has a maximum CLTV of 80%.
The maximum CLTV available is dependent on credit qualification.
Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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VA Funding Fee – Everything You Need to Know

VA Funding Fee – Everything You Need to Know

First: Why get a VA loan?

What is a VA funding fee?