VA funding fees explained

A VA home loan can open the door to homeownership for military veterans, active-duty service members, and their families, but there’s one thing that it includes that a typical home loan doesn’t: the VA funding fee.

The VA funding fee is a one-time fee that is charged to borrowers who use their VA home-loan benefits to finance the purchase of a home. This fee is paid to the VA and is used to help offset the costs of providing the generous benefits that the VA home-loan program offers. 

Why is there a VA funding fee?

VA loan benefits include no down payment, no mortgage insurance, lenient credit requirements, lower interest rates, and lower closing costs. But these benefits come at a price: The VA funding fee.

Usually, a low or no-down-payment loan program requires borrowers to purchase private mortgage insurance (PMI), which protects lenders in case the borrower defaults on their loan. However, because VA home loans are guaranteed by the U.S. Department of Veteran Affairs (the VA), lenders know that even if the VA borrower defaults on their loan, they won’t lose all of the money they lent. 

In fact, the VA promises to pay a specific amount to the lender on behalf of any VA borrowers who default on a loan, and the funding fee helps cover the cost to taxpayers in case the VA borrower defaults. 

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Who is eligible for a VA loan?

Before you begin worrying about the VA funding fee, make sure you’re eligible for the VA loan program in the first place. VA loan eligibility is based on a minimum service requirement:

• For active-duty service members: You served at least 90 continuous days of active duty
• For veterans, National Guard members, or Reserve members: You meet the active-duty requirements for your dates of service
• For surviving spouses: Your spouse is a service member who is missing in action or who died while in service or from a service-related disability.

To get a VA loan, you also need a Certificate of Eligibility (COE), which is a document that shows a lender that you qualify for a VA loan. If you don’t have your COE, your lender can request one for you, or you can obtain it yourself, either online or through the mail.

How much is the VA funding fee?

The VA funding fee is calculated as a percentage of the total loan amount. The exact percentage can be determined by two main factors:

• The size of your down payment: The VA funding fee is lower for borrowers who are able to make a down payment of at least 5% of the purchase price of the home.
• Whether you have used your VA home loan benefits before: The VA funding fee is higher for borrowers who have used their VA home-loan benefits before.

If you’re planning to use your VA home-loan benefits for a home-purchase loan, you can use funding-fee chart below, adapted from the VA Home Loan Guaranty Buyer’s Guide, to calculate what your funding fee would be:

You can also use the VA loan program to refinance your existing mortgage in an Interest Rate Reduction Refinance Loan. In that situation, the funding fee is only 0.5%. If you want to refinance and also be able to take cash out against your home, the funding fee is 2.30% for first-time use and 3.60% for subsequent use. 

Here are some other loan types that have different funding fees:

• If you’re eligible for a Native American Direct Loan (NADL), the funding fee is 1.25% of the loan amount for a purchase loan and 0.5% for refinancing. Check the VA website for more information about how the NADL works.
• If you’re taking over a VA loan through loan assumption, you’ll pay a 0.5% funding fee.
• If you’re buying a manufactured home that is not permanently attached to the land, you’ll pay a 1% fee. And if you later decide to purchase land to affix your home to, you’ll still be eligible for the first-time funding fee listed on the chart above.

How do you pay the VA funding fee?

The VA funding fee is considered a closing cost and so it is due at the time of closing. You pay it to your lender, who sends it to the VA on your behalf.

Despite the relatively favorable terms of the VA home-loan program, the VA funding fee can still be a burdensome and significant cost to VA borrowers. If you’re not sure you’ll be able to pay the fee, don’t worry. You do have some options for how to pay it:

• You can pay the fee upfront as a closing cost, as mentioned above.
• You can roll the fee into your loan balance so that you don’t have to pay upfront. This will increase the size of your loan, of course, but may be more feasible for you than paying several thousand dollars upfront.
• You can ask the seller to pay the fee as a seller concession. Though VA rules dictate that sellers cannot pay costs on behalf of the buyer that exceed 4% of the total loan, the VA funding fee is considered an exception to this rule.

Use our Mortgage Calculator to learn how rolling your funding fee into your loan balance would affect your monthly payments.

Can you be exempt from the VA funding fee?

The VA funding fee is charged to most borrowers who use their VA home loan benefits to finance the purchase of a home. However, there are a few exceptions to this rule, which have changed a bit as of 2020. You might be exempt from the funding fee if you are:

• Receiving VA compensation for a service-related disability
• Eligible to receive VA compensation for a service-related disability, but are instead receiving military retirement payment or active-duty pay in lieu of compensation
• The surviving spouse of a veteran who died in the line of duty, from a service-related disability, or who was completely disabled — and you are also receiving Dependency and Indemnity Compensation.
• An active-duty servicemember who can document that you have received a Purple Heart on or before the closing date
• A servicemember with a “proposed or memorandum rating” from the VA (received before the closing date) that establishes compensation eligibility because of a pre-discharge claim.

If you’re not sure if you’re eligible for a VA funding fee waiver, check your VA loan COE — it will specify if you’re exempt from the funding fee or not. Your COE will also tell you if you’re being charged for a first-time or subsequent use of the VA home-loan program.

Can I get a refund for the VA funding fee?

If you believe that you were eligible for a VA funding fee exemption at the time you closed on your home and paid it, you might be able to get a refund. You might find yourself in this situation if, say, your disability claim was still processing when closing time came, but was approved afterward. 

​​If you believe you’re entitled to a refund, you should reach out to your lender or call your VA Regional Loan Center at (877) 827-3702.