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VA Loan Funding Fees: How Much Do They Cost in 2023?
By Alison Tobin MONEY RESEARCH COLLECTIVE
The VA loan program is a benefit provided by the U.S. Department of Veterans Affairs to military service members and their surviving spouses. By lowering the cost of a home loan, the program helps more veterans to become homeowners.
Yet, as with getting a conventional mortgage loan, receiving a VA loan obliges you to pay various costs when the loan closes. Among those charges is the VA loan funding fee, a levy paid by the new homeowner that helps to support the cost of the VA’s program.
If you’re a prospective homebuyer considering a VA loan, you’re probably about to pay this charge. . Here’s everything you need to know about the VA loan funding fee, including how much it costs and who is exempt from paying it.
Table of Contents
- What is a VA loan funding fee?
- How much is a VA loan funding fee?
- Who is eligible for a VA loan funding fee?
- Are there exemptions to the VA funding fee?
- How can you pay the VA funding fee?
- VA loan funding fee FAQs
- Summary of our guide to VA loan funding fee
What is a VA loan funding fee?
The VA loan funding fee is a one-time cost you pay when you close on a VA purchase loan, refinance your mortgage or do a cash-out refinance. Since VA mortgage loans don’t require borrowers to put a down payment on their homes or pay private mortgage insurance (PMI), the funding fee helps offset the loan program’s cost to U.S. taxpayers.
The U.S. Department of Veterans Affairs (VA) sets the funding fee. In addition to this payment, you’ll still need to pay closing costs to your VA loan lender (although these costs tend to be lower for a VA loan than a conventional one). The funding fee may also be folded into your monthly mortgage payments if you choose to include it in your financing.
How much is a VA loan funding fee?
The cost of the VA loan funding fee depends on your loan amount, the type of loan you’re getting and your down payment (if you make one). As mentioned above, the VA sets funding fee rates based on a percentage of your total loan amount (not on the purchase price for the home).
One of the biggest factors that affect your fee is your down payment. Though you’re not required to put money down with a VA loan, doing so will lower your loan amount and your funding fee. Your funding fee amount will also depend on whether this is your first or subsequent VA loan.
Current VA funding fees
The current VA loan funding fee breakdown can be found in the table below. These fees apply to all veterans, active-duty military members, National Guard members and reservists taking out purchase or construction loans backed by the VA. If you have used a VA loan to purchase a manufactured home in the past, you still get the first-time use rates for these types of loans.
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| Down payment | Funding fee | |
| First use | Less than 5% | 2.15% |
| 5% or more | 1.5% | |
| 10% or more | 1.25% | |
| Subsequent use | Less than 5% | 3.3% |
| 5% or more | 1.5% | |
| 10% or more | 1.25% |
Source: U.S. Department of Veterans Affairs
The table below contains VA-backed cash-out refinance rates, which are different and do not change based on your down payment.
| Funding fee | |
| First use | 2.15% |
| Subsequent use | 3.3% |
Source: U.S. Department of Veterans Affairs
The funding fee for VA interest rate reduction refinance loans (IRRRLs) — also called VA streamline refinance loans — is 0.5%. For manufactured home loans, the fee is 1%. Funding fees for both loan types do not change based on your down payment or prior VA loan use.
How is the VA funding fee calculated?
The VA funding fee is calculated based on your loan amount, your down payment and whether you’ve had a VA loan before.
For example, say you’ve never had a VA loan before and are purchasing a $300,000 home. If you put 5% down (or $15,000), your funding fee would be 1.65% of $285,000 (the purchase price minus your down payment), which comes to a total of $4,702.50.
If you put 10% down ($30,000), your funding fee would be 1.4% of $270,000, which totals $3,780. Putting more money down reduces your total funding fee amount.
Who is eligible for a VA loan funding fee?
The VA loan funding fee is typically required for most borrowers who use a VA loan to purchase a home or refinance an existing mortgage. This fee helps offset the costs of the VA loan program and ensures that the program remains self-sufficient over time.
In general, the following individuals are eligible for a VA loan funding fee:
- Veterans who served on active duty and were discharged under conditions other than dishonorable.
- Current active-duty service members who meet certain length-of-service requirements.
- Certain Reservists and National Guard members who meet specific eligibility criteria.
- Certain surviving spouses of veterans who died as a result of service-related injuries or disabilities, or who died while on active duty.
The specific amount of the funding fee varies depending on factors such as the type of loan, the borrower’s military status and the size of the down payment. However, many veterans and service members may be able to have the funding fee waived or reduced if they have a service-connected disability or other qualifying circumstances.
Are there exemptions to the VA funding fee?
Veterans and service members with a service-related disability are exempt from paying the VA funding fee.
According to the VA guidelines, the following exemptions are applicable:
- You have a service-connected disability and are receiving VA compensation
- You have a Purple Heart (either received before or on the loan closing date)
- You are receiving retirement or active-duty pay but have a disability related to your service making you eligible for VA compensation
- You are a surviving spouse of a veteran who either died in service, died as a result of their disability from their service or was totally disabled and you are receiving Dependency and Indemnity Compensation (DIC)
- You are a service member eligible for VA compensation based on a pre-discharge claim and you have a proposed or memorandum rating before the loan closing date
Once you start the VA loan application process, you will need to obtain your Certificate of Eligibility (COE) either on your own or through a VA-approved lender. The COE certifies that you are eligible for a VA loan and may outline your funding fee requirements. For more information on how to obtain your COE, read the article on VA loan tips.
How can you pay the VA funding fee?
There are different ways to pay the funding fee when you take out a VA loan. One of the most common ones is to pay it along with other closing costs when you close on your mortgage. Your lender will then submit the payment to the VA on your behalf.
Another way is to finance the funding fee by folding it into your monthly mortgage payments. The benefit of this option is that it limits your out-of-pocket expenses at closing. However, financing the funding fee also means you’ll pay interest on it over time.
The last option you have as a borrower is to have the seller cover the fee. In some cases, you may be able to negotiate with the seller on who pays closing costs and fees. The VA considers this a seller’s concession, which cannot exceed 4% of the total loan amount.
When is it necessary to pay a VA funding fee?
You pay the VA funding fee when you close on your loan. It will be incorporated into your closing costs if you want to pay the fee upfront. If you decide to finance it by rolling into your loan amount, you will pay it off over time as you make monthly mortgage payments.
VA loan funding fee FAQs
When are you eligible for a refund of the VA funding fee?
You may be eligible for a refund of your VA funding fee if you were awarded VA compensation for a service-related disability after you paid the fee. This could happen if your disability claim was being processed while you closed on your VA loan. However, this does not apply to those who closed on their loan before their effective compensation date. Call your VA regional loan office to see if you are eligible for a refund.
When refinancing a VA loan, do you have to pay a VA funding fee?
You must pay a VA funding fee if you refinance a VA loan. The percentage of the funding fee is different depending on whether you are a first-time or subsequent borrower. If you've borrowed before, your fee will be a little higher.
There are exceptions to the rule, however. Veterans, service members and surviving spouses with a service-connected disability may be eligible to waive the fee on refinance loans.
How long does it take to get the funding fee exemption on a VA loan?
Being eligible for the VA funding fee exemption can save you thousands of dollars, but this benefit is reserved for service members with a service-related disability. To verify your eligibility for the exemption, you need a Certificate of Eligibility (COE), which all VA loan applicants must obtain regardless of exemption status. It can take anywhere from a few minutes to a few weeks or over a month to get your COE from the VA, depending on whether you request it online or by postal mail. Accessing it through the VA's eBenefits portal is generally the fastest way.
What is the difference between VA loan funding fees and mortgage insurance?
VA loan funding fees and mortgage insurance serve similar purposes in that they help offset the risk that lenders take on by offering loans to borrowers. However, there are some key differences between the two:
VA loan funding fees are a one-time upfront cost that is paid by the borrower at the time of closing. The fee is based on a percentage of the loan amount and helps fund the VA loan program.
Mortgage insurance, on the other hand, is typically a monthly premium that is paid by the borrower in addition to their mortgage payment. It is required by lenders for borrowers who put less than 20% down on their home purchase and helps protect the lender in case the borrower defaults on the loan.
Is it possible to have the VA loan funding fee waived?
Yes, it is possible to have the VA loan funding fee waived in certain circumstances. For example, veterans who have a service-connected disability may be eligible for a waiver of the funding fee. Surviving spouses of veterans who died as a result of a service-related disability may also be eligible for a waiver. In addition, borrowers who receive VA compensation for a service-connected disability are generally exempt from paying the funding fee.
What if the borrower defaults on a VA loan after paying the funding fee?
If a borrower defaults on a VA loan after paying the funding fee, the lender may be able to recoup some or all of the losses through the VA's guarantee program. Under this program, the VA agrees to reimburse the lender for a portion of the outstanding loan balance in the event of a default. However, the amount of the guarantee will vary depending on the size of the loan and other factors. In some cases, the borrower may still be responsible for paying any remaining balance owed to the lender after the guarantee is applied.
Summary of our guide to VA loan funding fee
The VA loan program is a benefit available to military members and surviving spouses. It allows borrowers to potentially save thousands of dollars on their mortgage, and so helps make homeownership more attainable. Though there are lower closing costs associated with VA loans when compared to conventional loans, borrowers are required to pay a VA loan funding fee. Since those who take out a VA loan are not required to pay PMI or put any money down, the fee helps keep the VA loan program running.
For VA purchase and construction loans, the VA funding fee ranges from 1.4% to 3.6% of the total loan amount, depending on your down payment and whether you’ve had a VA loan in the past. You can either pay the funding fee upfront at closing or finance it by folding it into your monthly payment.
Individuals with a service-related disability may be exempt from paying the VA funding fee.
Alison Tobin is a personal finance news writer and editor. She covers news topics in the areas of savings, investing, real estate, taxes, insurance, and more. Her work has been featured in Yahoo!, Forbes, AP News, PropertyCasualty360, and various local publications across the United States.