For U.S. servicemembers and veterans, the VA loan program is one of the best ways to get the funding needed to buy a house. It’s also possible to refinance an existing VA loan. One of the requirements of getting any of these loans — which come with competitive interest rates — is the payment of the VA funding fee. Here’s how this fee works and the requirements associated with it.

What is the VA funding fee?

Each VA loan comes with a funding fee – but what is a VA funding fee? Unlike an FHA loan, which requires borrowers to pay an upfront mortgage insurance fee of 1.75 percent of the loan amount, there is no insurance requirement with a VA loan. On top of that, there is no down payment requirement (unlike a conventional loan).

These are generous benefits, but mortgage lenders still need protection in place in the event the borrower doesn’t pay the loan back. That’s where the VA funding fee comes in: to help reduce the cost to taxpayers in the event the loan goes into default.

The VA funding fee is paid at closing. It’s based on two key factors: the size of the down payment; and whether it’s the first time the borrower has used the VA loan program.

How much is the VA funding fee?

The VA funding fee amounts are determined by Congress, which sets the rates based on the costs of running the VA Home Loan program. The fee structure was last updated in 2020, when the first-time use fee increased from 2.15 percent to 2.3 percent and the subsequent use VA funding fee went from 3.3 percent to 3.6 percent. The fees could change again in the future.

Buy or build a home

The chart below shows much you can expect to pay for the VA funding fee if you’re buying a home or taking out a VA construction loan as active-duty military, Reserves or National Guard. This fee structure went into effect in 2020 and remains the same for 2022. These amounts could change in 2023 and beyond.

Down payment First use After first use
Less than 5% 2.3% 3.6%
5% – 9.99% 1.65% 1.65%
10% or more 1.4% 1.4%

It’s important to note that a bigger down payment (borrowing a smaller amount of money based on the loan amount) results in a smaller funding fee. It might not seem like a big deal, but it can make a difference.

Consider if you’re buying a $300,000 home as a first-time VA loan borrower. If you put no money down, your funding fee would be $6,900. However, if you have a 10 percent down payment, you’d only be borrowing $270,000, and you’d have a smaller VA funding fee of only $3,780.

As you can see, although VA loans offer the ability to put no money down, that doesn’t necessarily mean you should take advantage of it. If you have the money for a down payment, you could reduce your overall loan costs by reducing the overall amount of the loan.

Refinance your current home loan

You can also use the VA loan program to refinance your existing mortgage. One option is a VA Interest Rate Reduction Refinance Loan (IRRRL), otherwise known as a streamline refinance. the funding fee is a nominal 0.5 percent. (Compare the best VA lenders if you’re looking to refinance, though. USAA, for example, covers the cost of the funding fee for IRRRLs.)

Alternatively, you can do a VA cash-out refinance, but the fee is higher, as you can see in the chart below.. 2.3 percent of the amount borrowed for your first use and 3.6 percent for subsequent use of the program.

Refinance loan type Funding fee
Interest Rate Reduction Refinance Loan (IRRRL) 0.5%
Cash-out refinance 2.3% for the first use

3.6% for subsequent use 

There are some exceptions to having to pay a higher funding fee for further use of the program, the main one being the higher subsequent use VA funding fee doesn’t apply if you used your previous entitlement for a manufactured home.

Is there a VA funding fee exemption?

Not everyone is required to pay a funding fee when they get a VA purchase loan or a refinance. You might be eligible to receive a VA funding fee exemption if you are:

  • Disabled and receiving VA compensation for a disability connected to your service
  • Receiving military retirement pay in lieu of compensation for a service-connected disability
  • On active duty, but you provide documentation on or before closing showing that you’ve been awarded the Purple Heart
  • Eligible to receive compensation as the result of a pre-discharge and you present the appropriate paperwork before the loan closes
  • A surviving military spouse whose partner died from a service-related disability, or died in service and is receiving Dependency and Indemnity Compensation

One of these circumstances can save you money by making you eligible for the VA funding fee exemption, but you need to make sure you have all the necessary documentation to prove your situation by the time your loan closes.

Is anyone eligible for a VA funding fee refund?

If you already paid for a VA funding fee in the past, you might be able to recoup that cash if you wind up receiving compensation for a disability related to your service. This is a unique situation, so contact a VA loan expert to review your case. You can talk to a VA loan officer by calling 877-827-3702. This line is staffed with professional help Monday through Friday from 8:00 a.m. to 6:00 p.m. Eastern Time.

How to pay the VA funding fee

If you don’t qualify for an exemption, you’ll need to cover the cost of the VA funding fee. One of the easiest ways to pay the fee is to roll it into your loan. However, if you decide to do that, you’ll pay interest on it. Basically, it becomes part of your loan total.

It’s also possible to pay the VA funding fee upfront with cash. If you have the available resources, this can save you money on interest over the life of the loan, since you won’t be increasing the cost of your loan with the funding fee.

Carefully consider the funding fee, and your options, so that you make a choice that works best for you.

Bottom line

While no one likes paying additional fees, the VA funding fee is a small price for the big benefits of a VA loan. Whether you’re looking to buy a home with no down payment, hoping to refinance for a fraction of the cost of a conventional refinance or you’re simply hoping to qualify for some of the lowest mortgage rates possible, the VA loan program offers advantages to service members, veterans and their families.