While many VA home loans don’t require a down payment or private mortgage insurance (PMI), they usually require borrowers to pay a flat fee to the Department of Veterans Affairs. This is called a VA funding fee, and it’s a one-time payment that helps ensure the VA can continue to offer accessible, low-cost VA mortgages to veterans, service members and others who qualify for the program.
How much is the VA funding fee? The amount you may pay is determined by factors such as the size and type of your home loan. However, there are some instances in which a funding fee isn’t required.
Read on to learn more about the pros and cons of the VA funding fee and other details about the VA home loan program.
Table of Contents
- What is the VA funding fee?
- How does the VA funding fee work?
- Who is required to pay the VA funding fee?
- How do I pay the VA funding fee?
- VA funding fee exemptions
- What’s the impact of the VA funding fee on the total cost of a VA home loan?
- Differences between the VA funding fee and other mortgage insurance fees
- VA funding fee FAQs
- Other resources regarding VA funding fees
What is the VA funding fee?
The VA funding fee is a one-time payment a VA home loan program borrower must pay along with other loan closing costs. The funding fee is designed to help keep the program funded for future service members, veterans and others who meet the program requirements.
Remember, VA home loans generally require no down payment requirements and also don’t require monthly private mortgage insurance. Interest rates are often lower on VA-backed or direct VA home loans. The VA funding fee is the price to access these highly beneficial loan terms.
Pros and cons of paying the VA funding fee
If required to pay the VA loan funding fee, you must agree to pay the amount asked to proceed with your mortgage. The fee can be included in the total cost of your loan, or you can pay it in full at closing.
- VA loans don't require a down payment (in most cases)
- No private mortgage insurance (PMI) is required with VA loans
- VA loans offer more favorable terms (interest rates, creditworthiness requirements) than traditional loans
- Funding fee contributes to accessible homeownership for other military taxpayers
- With a down payment of less than 5%, the VA loan funding fee is 2.15% of the loan amount
- VA loan funding fee increases if you're using it on a second VA loan
- For cash-out refinance loans, the VA funding fee is 2.15% for first-time use
The bottom line: VA loans are typically more affordable than other options, including FHA loans, and could make buying a house with bad credit or with a small down payment easier.
How does the VA funding fee work?
- You are only required to pay the VA funding fee once per VA loan.
- The fee amount can fall between 0.5% and 3.3% of the total loan amount.
- These funding fees are applied to every VA purchase loan, Native American Direct Loans (NADL), Interest Rate Reduction Refinance Loans (IRRRLs) and Manufactured home loans — with few exceptions
- The purpose of the fee is to sustain the VA loan program for future military homeowners.
Who is required to pay the VA funding fee?
Anyone who uses the VA home loan program to fund the purchase price of a home must pay the VA funding fee. The VA loan funding fee also applies to other kinds of VA loans. The only exemptions are for those with service-related disabilities of more than 10%, Purple Heart recipients and spouses of veterans who died in the line of duty and are receiving Dependency and Indemnity Compensation (DIC).
Your VA funding fee rate can vary based on the nature of your loan. It's influenced by your down payment amount, the purpose of your loan and whether you’ve used the VA home loan program with mortgage lenders in the past.
How much is the VA funding fee?
Current VA funding fees came into effect on April 7th, 2023, and will remain in place until November 14th, 2031, at which time they will undergo a review.
The biggest factor that determines the percentage a potential borrower will pay is the down payment. While many VA home loans won’t require a down payment from qualified borrowers, you can still put money down. The more money you put down, the lower the funding fee rate.
Fees for a VA purchase loan can vary, depending on whether it’s the first loan.
The following VA funding fee chart shows the current purchase and construction loan rates for veterans, active-duty military members, as well as National Guard and Reserve members:
2023 VA funding fee chart
Below you’ll find the VA funding fee rates that apply to veterans, active-duty service members and National Guard and Reserve members on VA-backed purchase and construction loans.
|Down Payment||Funding Fee|
|First VA Loan||Less than 5%||2.15%|
|5% or more||1.5%|
|10% or more||1.25%|
|After First VA Loan||Less than 5%||3.3%|
|5% or more||1.5%|
|10% or more||1.25%|
Other VA loans also require a VA funding fee.
- Interest rate reduction refinancing loans (IRRRLs) — also known as VA streamline refinance loans — have a VA funding fee of 0.5%
- For VA cash-out refinance loans, the funding fee is 2.15% for first use — meaning first-time borrowers — and 3.3% for subsequent uses. Down payments do not factor into the VA funding fee for these types of loans.
Changes to the VA funding fee in 2023
As of April 7th, 2023, the funding fee decreased across all categories. For example, users taking out their first VA loan with down payments under 5% now pay a 2.15% funding fee instead of 2.3%.
There are similar rate reductions across all types of VA home loans. This has made it easier for the average veteran to afford a home, whether they’re capable of getting the best VA loan rates or not.
How do I pay the VA funding fee?
As a borrower, you can take care of your VA funding fee in a few ways:
- Financing the fee by rolling it into the total loan amount.
- Pay the fee upfront along with closing costs, discount points and lender fees, among others.
- Have the seller pay the funding fee.
Most homebuyers choose to finance the fee in order to avoid paying thousands of dollars out of pocket. That said, by financing the fee, your monthly payments will be higher, and you will have to pay interest on the amount over the life of the loan.
Having the seller pay for the funding fee is considered a concession and is sanctioned by the Department of Veterans Affairs so long as the fee does not exceed 4% of the loan amount. Sometimes, these concessions may include a commission for real estate agents.
Like most mortgage-related fees, the VA funding fee is due upon the loan closing. After you pay the fee, your lender sends the funds to the VA.
VA funding fee exemptions
Applying for a loan with a mortgage lender that participates in the VA loan program is one of the first things you’ll do during the homebuying process. Eventually, you will have to present a Certificate of Eligibility (COE) to prove your entitlement for the VA loan benefit.
This certificate from the Department of Veterans Affairs specifies whether or not you have to pay the VA funding fee.
Exemption from paying the VA loan funding fee is limited to a handful of groups. That said, everyone applying for a VA loan should check if they qualify for an exemption, as the rules pertaining to this matter were updated as recently as 2020.
The following groups are excluded from having to pay the VA funding fee:
- Veterans currently receiving VA compensation for a service-connected disability.
- Service members entitled to compensation for a service-related disability but instead are receiving retirement or active-duty pay.
- Veterans eligible for disability compensation if they have not received retirement pay.
- Surviving spouses of a veteran who died in the line of duty or from disabilities related to their military service.
- An active-duty service member who has been awarded a Purple Heart, a military decoration. Purple Heart recipients were wounded while serving in the United States military.
On some occasions, a person’s eligibility for exemption is not clear. Only the Department of Veterans Affairs can make a decision in regard to exemption.
If exemption status has not been determined and/or you have a pre-discharge disability claim pending at the closing date, the lender will collect the funding fee and send it to the VA. If you are awarded disability compensation after closing, you may be eligible for a refund on your VA funding fee.
What’s the impact of the VA funding fee on the total cost of a VA home loan?
Paying the VA funding fee typically saves you money in the long run, if not right away. VA loans allow for a home purchase without any down payment. That’s rarely possible for homebuyers with standard loan assumptions.
In addition, people who take out conventional loans with small down payments often have to take out expensive private mortgage insurance (PMI). VA borrowers don’t have to worry about that, either.
VA home loans often have lower interest rates than conventional mortgage loans. These lower rates can save you a lot of money over the full lifespan of the loan. The same applies if you wish to apply for a refinance mortgage with a VA home loan.
Differences between the VA funding fee and other mortgage insurance fees
Some people who offer mortgage tips refer to the VA funding fee as the VA’s alternative to mortgage insurance. However, there’s at least one difference worth exploring, whether purchasing a newly-manufactured home or completing a mortgage refinance.
The VA funding fee is a one-time fee paid at loan closing or rolled into the total cost of your loan, alongside the origination fee and any other closing costs. Mortgage insurance, on the other hand, is paid monthly, yearly or a combination of both. Additionally, PMI is paid for multiple years, depending on your loan amount and how quickly you repay it.
VA funding fee FAQs
Who has to pay the VA funding fee?
How is the VA funding fee calculated?
Is the VA funding fee tax-deductible?
Can I get a refund if I've already paid the funding fee?
In rare circumstances, getting a refund on a VA funding fee may be possible. To be eligible, you must be awarded VA compensation for a service-related disability that applies retroactively before you took out the VA loan.For example, let's say you return from overseas, take out a VA home loan and pay the VA funding fee. If you later notice symptoms and receive a diagnosis of a medical condition related to your service, you may potentially qualify for a VA funding fee refund.
Are there any exemptions or waivers for the VA funding fee?
Other resources regarding VA funding fees
By applying for a loan using the VA home loan program, a VA funding fee will be part of the equation whether you are exempt or not.
If your loan is for first-time use, you may require more information. Read the following articles for the latest data on VA loans and other related topics.