Key takeaways

  • A VA funding fee is meant to reduce the cost to taxpayers in the event the loan goes into default.
  • Congress sets this fee, which is a percentage of your total loan amount.
  • The fee is lower if it's your first time getting a VA home loan.
  • You can pay the VA loan funding fee upfront or roll it into your loan.

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 — or to refinance an existing mortgage, including a 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.

So, what is a VA funding fee and how much will it cost you? To help you find out, here’s a look at how this fee works.

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.

You’ll pay the VA loan funding fee 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?

Congress determines the VA funding fee amounts, which sets the rates based on the costs of running the VA Home Loan program. The latest fee structure took effect April 7, 2023, when the VA funding first-time use fee fell from 2.3 percent to 2.15 percent and the subsequent use VA funding fee went from 3.6 percent to 3.3 percent. The fees could change again in the future.

The chart below shows how much you can expect to pay for the VA funding fee if you’re buying a home as a veteran, active-duty military or a member of the Reserve or National Guard. The same VA loan fees apply if you’re taking out a VA construction loan, too.

Down payment First use After first use
Less than 5% 2.15% 3.3%
5% – 9.99% 1.5% 1.5%
10% or more 1.25% 1.25%

It’s important to note that a bigger down payment results in a smaller funding fee. It might not seem like a big deal, but it can make a difference.

Let’s say 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 $6,450. However, if you have a 10 percent down payment, you’d only be borrowing $270,000 and you’d get the lower first-use rate of 1.25 percent. As a result, you’d have a smaller VA funding fee of only $3,375.

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 this perk. If you have the money for a down payment, you could reduce your overall loan costs by shrinking what you pay in VA loan fees.

How to pay the VA funding fee

First, find out if you need to pay the fee at all. Not everyone is required to pay a funding fee when they get a VA purchase loan or a refinance.

VA funding fee exemptions

You might be eligible to receive a VA loan funding fee exemption if you can provide paperwork showing that you’re:

  • 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 and you’ve been awarded the Purple Heart
  • Eligible to receive compensation as the result of a pre-discharge
  • A surviving military spouse whose partner died from a service-related disability, or died in service and is receiving Dependency and Indemnity Compensation

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.

VA funding fee refunds

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.

VA funding fee and refinancing

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 process to close the loan generally takes longer and the fee is higher.

Refinance loan type VA funding fee: first-time use VA funding fee: subsequent use
Interest Rate Reduction Refinance Loan (IRRRL) 0.5% 0.5%
Cash-out refinance 2.15% 3.3%

There are some exceptions to having to pay a higher funding fee for further use of the program. If you used your previous entitlement for a manufactured home, for example, you may still be able to qualify for the VA funding fee first-time use percentage.

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, refinance for a fraction of the cost of a conventional refinance or qualify for some of the lowest mortgage rates possible, the VA loan program offers advantages to service members, veterans and their families.