What Is a VA Funding Fee?
What you'll learn:How VA funding fees are calculated and how they affect closing costs.
EXPECTED READ TIME:5 MINUTES
A VA funding fee is a one-time payment that helps lower the cost of a VA loan since the VA home loan program doesn’t require down payments or mortgage insurance. It can either be paid up front or rolled into the cost of the loan. Since the fee is charged by the Department of Veterans Affairs and not by the lender, it is the same cost regardless of the lender funding the loan.
Even though VA loans have funding fees, you’ll likely find the benefits of a VA loan outweigh the cost of the fee.
How much is a VA funding fee?
The VA funding fee varies based on multiple factors and ranges from 0.5% to 3.3%. If you’re eligible for a VA loan, there will be three key factors that determine the cost of your VA funding fee:
- The total amount you are borrowing.
- How much money you choose to use for a down payment.
- Whether you have ever had a VA-backed loan in the past — in this case, the new VA loan is most often referred to as “subsequent use.”
VA Funding Fee Chart, First Time Use
As you can see in the following chart based on VA-backed purchase and construction loans, funding fees are calculated using different factors based on the VA loan type.
|
If your down payment is … |
Your VA funding fee will be … |
---|---|---|
First use |
Less than 5% |
2.15% |
|
5% or more |
1.5% |
|
10% or more |
1.25% |
Subsequent use |
Less than 5% |
3.3% |
|
5% or more |
1.5% |
|
10% or more |
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.
While VA loans don’t require a down payment, whether you choose to put down money or not helps determine your funding fee.
For example, let’s say you use a VA-backed loan for the first time to purchase a $200,000 home. If you opt to pay a 5% down payment of $10,000, you’ll pay a funding fee of $2,850 or 1.5% of the $190,000 loan amount. Note that the funding fee only applies to the loan amount and not the purchase price of the home.
VA funding fee exemptions
Nearly all VA purchase loans and refinances require a funding fee. However, there are some situations where it can be waived or reimbursed. A VA funding fee exemption is available in the form of a special waiver. The exemption from the funding fee is made for borrowers who were disabled as a result of their military service.
You may be exempt from a VA loan funding fee if you meet one of the following criteria:
- Entitled to or receiving compensation for a service-related disability
- Active-duty service member who has received a purple heart
- A spouse of a veteran who died while serving or through 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.
VA funding fee refunds
Borrowers may also be eligible for a refund of the VA funding fee if they are awarded VA compensation for a service-related disability. However, the effective date of the VA compensation must be retroactive prior to the date of your loan closing.
If you believe you’re eligible for a refund, be sure to call your VA regional loan center at 877-827-3702.
VA funding fee on refinances
There are two types of VA loan refinance options: an Interest Rate Reduction Refinance Loan (IRRRL) or a cash-out refinance.
The great news is that it doesn't matter how many times you've used the VA loan program, your IRRRL funding fee rate is a flat 0.5% of the amount you borrow (unless you are exempt). Cash-out refinance funding fees are higher than the VA purchase funding fees, as listed in the chart above, if you chose to put down less than 5% for your down payment.
How do you pay the VA funding fee?
There are two options that you can choose from to pay the fee:
- Pay the full fee all at once at closing
- Roll the funding fee into your loan and pay it off over time with your monthly mortgage payments (also known as financing)
A VA loan funding fee could be one of the costs required during closing if you haven't rolled the fee into your mortgage. Typical closing costs usually include things like lender fees, appraisal costs, property taxes, and discount points.
Paying in full reduces your monthly mortgage payments and how much you’ll pay in interest over time, but it will increase the amount due at closing. That’s why it’s important to work with your lender to understand the costs prior to closing and discover which option is best for you.