Definition
VA funding fee
The VA funding fee is a one-time charge on most VA-guaranteed home loans that helps fund the program in place of monthly mortgage insurance. Its size depends on the down payment and whether the borrower has used VA loan benefits before. It can be financed, and many veterans with service-connected disabilities are exempt.
VA loans do not carry monthly mortgage insurance. Instead, the borrower pays a funding fee once, usually by adding it to the loan.
For first-time use, the fee is 2.15% with less than 5% down, 1.5% with 5% to under 10% down, and 1.25% with 10% or more down. Subsequent use with less than 5% down costs 3.3%. An interest rate reduction refinance (IRRRL) carries a lower fee of 0.5%.
Worked example. A veteran buying a $350,000 home with no down payment has a base loan of $350,000. Multiply that base by the first-use rate for under 5% down, and the result is added to the balance; principal and interest are then calculated on the larger total. Putting 5% down would both shrink the base loan and move the borrower to the lower rate tier. The VA loan calculator handles the tiers and the exemption switch.
Exemptions apply to veterans receiving VA compensation for a service-connected disability, certain Purple Heart recipients on active duty and some surviving spouses, among others. The Certificate of Eligibility indicates exempt status. Because the fee is financed, it also slightly raises the loan-to-value ratio.
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FAQ · 3 questions
Questions about VA funding fee
Who is exempt from the VA funding fee?
Veterans receiving VA compensation for a service-connected disability are generally exempt, as are certain Purple Heart recipients on active duty and some surviving spouses. Your Certificate of Eligibility shows your status.
Can I roll the VA funding fee into my loan?
Yes. Most borrowers finance it, so it adds to the loan balance instead of the cash due at closing. You can also pay it upfront if you prefer.
Why is the funding fee higher the second time?
VA charges more for subsequent use when the down payment is under 5%. Putting at least 5% down brings subsequent use into the same lower tiers as first use.
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