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

VA Cash-Out Refinancing Loans

Native American Direct Loan (NADL)

Other VA Loan Types

Rate charts are provided by the VA and were effective January 1, 2020, 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?