A VA funding fee is a one-time payment made by current or former military personnel (or their surviving spouses) as part of the VA home loan program. This funding fee is paid to the Department of Veterans Affairs and applies to loans taken out for a home purchase, repair or refinance.
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 anywhere between 1.4% and 3.6% of the purchase price.
- These funding fees are applied to every VA mortgage with few exceptions.
- The purpose of the fee is to sustain the VA loan program for future military homeowners.
How much is the VA funding fee?
Current VA funding fees came into effect on January 1st, 2020, and will remain in place until January 1st, 2022, at which time they will be reviewed. Like mortgage rates, VA funding fees have fluctuated over time.
The biggest factor that determines the percentage a potential borrower will pay is the down payment. The more money you put down, the lower the funding fee rate. It’s worth noting that the VA does not have a minimum credit score requirement.
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:
|Down Payment||Funding Fee|
|First VA Loan||Less than 5%||2.3%|
|5% or more||1.65%|
|10% or more||1.4%|
|After First VA Loan||Less than 5%||3.6%|
|5% or more||1.65%|
|10% or more||1.4%|
|Source: U.S. Department of Veterans Affairs|
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 2.3% for first use — meaning first-time borrowers — and 3.6% for subsequent uses. Down payments do not factor into these kinds of loans.
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, 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.
Just like most fees related to mortgages, 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-related disability.
- Servicemembers 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 servicemember 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.
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 first-time use, you may require more information. We would urge you to read the following articles to get the latest data on VA loans and other related topics.