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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
EXPECTED READ TIME: 5 MINUTES
Updated April 7, 2023
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?
SIMILAR ARTICLES
VA Loan Eligibility: Step by Step | PenFed Credit Union
Learn what you need to do to qualify for a VA home loan. From finding a VA lender, getting your COE, prequalifying for a mortgage, and requirements for the property.
What Is a VA Loan Funding Fee? | PenFed Credit Union
Whether you’re purchasing or refinancing using a VA loan, you'll have a funding fee for first-time and subsequent uses. Find out what this fee is, how much it costs, and any exemptions.
VA Loan Basics: What You Need to Know | PenFed Credit Union
Knowing the basics of VA loans can be a big help when applying for one. Learn about the advantages, the credit requirements, closing costs, and what you need to do to get a VA mortgage.
Everything You Need to Know About VA Loan Rates | PenFed Credit Union
If you're shopping for a VA loan, you may have questions about VA rates. Find out who sets the rates, how your rate is determined, and the best time to lock in your interest rate.
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except 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 1.0 discount point, which equals 1.0 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 $400,000; loan-to-value ratio of 75%; 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.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except 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 1.0 discount point, which equals 1.0 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 $400,000; loan-to-value ratio of 96.5%; 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.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except 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 1.125 discount point, which equals 1.125 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.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except 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 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; 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.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
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.
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