With the VA home loan program, qualifying military members can buy a home at a competitive rate with no down payment or mortgage insurance required. In exchange for these great benefits, borrowers must pay the VA funding fee, a one-time charge associated with VA loans.
Understanding the funding fee, including how much it costs and how it’s paid, is essential to budget for your home purchase and recognize the true cost of your VA loan.
What is the VA Funding Fee?
The VA funding fee is a one-time fee paid to the Department of Veterans Affairs (VA) when a borrower closes on a VA loan. The cost ranges from 0.5% to 3.3% of the loan amount, depending on the size of your down payment and other factors.
VA loans are guaranteed by the government, which partially reimburses a mortgage lender if a borrower defaults. The VA funding fee helps reduce that cost, which would otherwise be covered by taxpayers.
It also “allows eligible veterans and service members to benefit from zero-down financing and competitive rates without monthly mortgage insurance,” says Shirley Mueller, senior vice president of Mortgage Lending at CrossCountry Mortgage and founder of VA Loans Texas in Austin, Texas.
How Much Is the Funding Fee for Purchase and Construction Loans?
If you plan to purchase an existing home for sale or new construction, your funding fee amount will depend on the size of your down payment and whether or not you’ve taken out a VA loan before. If you make a down payment, a larger amount upfront can reduce the cost of your funding fee.
| Down Payment | First VA Loan | Subsequent Use |
| Less than 5% | 2.15% | 3.3% |
| 5% to 9.9% | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
Let’s look at an example. If you use a VA loan to buy a $300,000 home, here’s how much the funding fee would cost based on the size of your down payment.
| Down Payment | First VA Loan | Subsequent Use |
| 0% | $6,450 | $9,900 |
| 5% | $4,275 | $4,275 |
| 10% or more | $3,375 | $3,375 |
How Much Is the VA Funding Fee If You Refinance?
There are two types of VA refinance loans: cash-out refinances and Interest Rate Reduction Refinance Loans (IRRRLs), also known as VA streamline refinances. The funding fee varies based on the loan type and your history of financing with VA loans.
| Refinance Loan | First Use | Subsequent Use |
| Cash-out refinance | 2.15% | 3.3% |
| VA streamline/IRRRL | 0.5% | 0.5% |
3 Ways to Pay Your VA Funding Fee
1. Add It to the Loan Amount
VA funding fees often cost thousands of dollars. If you’d rather not pay such a large sum upfront, you can finance the funding fee by adding it to your loan amount. This means you’ll pay interest on the fee, increasing your monthly payments and the overall cost of your mortgage.
2. Pay It Upfront as Part of Closing Costs
If you have enough cash to pay the full VA loan funding fee upfront, you can include it in your closing costs. When you choose this option, you’ll settle the entire amount at closing.
3. As Part of Seller Concessions
As you’re negotiating the terms of your purchase, you could ask the seller to pay the funding fee as a seller concession. However, they may counter your offer, especially if you’re in a seller’s market. Your real estate agent can help you decide the best strategy for negotiating concessions.
Keep in mind that there are specific rules for VA loans. Seller concessions – including the funding fee – cannot exceed 4% of the loan amount.
VA Funding Fee Exemptions
You are exempt from paying the VA funding fee if you meet one of the following criteria:
- You receive compensation for a service-connected disability.
- You’re eligible for service-connected disability compensation but receive retirement or active-duty pay instead.
- You receive Dependency and Indemnity Compensation (DIC) as the surviving spouse of a veteran.
- You’re an active-duty service member who has received the Purple Heart.
- You are a service member who is eligible for compensation due to a pre-discharge claim.
VA Funding Fee vs. Private Mortgage Insurance (PMI)
When you take out a VA loan, you are not required to make a down payment or buy mortgage insurance. That’s not the case with conventional loans, which require you to purchase private mortgage insurance (PMI) if your down payment is less than 20%.
The funding fee may seem similar to PMI since it’s an unavoidable expense for many VA loan borrowers. However, there are important differences between the two.
- The VA funding fee is a one-time fee. PMI is an ongoing monthly cost until you reach 20% equity in your home. Even if you roll your VA funding fee into your loan, it’s typically more affordable than paying for years’ worth of PMI.
- PMI protects the lender. The VA funding fee supports the VA loan program and eliminates the need for mortgage insurance.
A VA Loan Has Benefits, Despite the Funding Fee
The benefits of a VA loan often outweigh the funding fee’s cost. A VA loan does not require a down payment, which saves you money upfront and makes homeownership more accessible.
VA loans also tend to have more competitive interest rates than conventional mortgages. The rate you qualify for will depend on numerous factors, including your lender and credit score.
If you meet the requirements, securing a VA loan can be easier than qualifying for a conventional mortgage. The VA doesn’t set a credit score minimum, so it’s up to individual lenders to decide what they’ll accept. Most require a score of at least 620, but some may allow scores as low as 580.
Tips for Minimizing Your VA Funding Fee
You might not be able to avoid paying the VA loan funding fee, but these tips can help you reduce it:
- Make a larger down payment: VA funding fees are divided into tiers. Putting more money down will let you enter a lower fee tier and reduce your funding fee.
- Consider refinancing to an IRRRL: If you already have a VA loan (and you rolled its funding fee into your loan), you might consider refinancing to an IRRRL. The funding fee on all IRRRLs is 0.5%, which is lower than the funding fees on all VA purchase and construction loans.
- Negotiate seller concessions: A seller may be willing to cover the funding fee to sweeten or speed up the deal. You can request this when you submit an offer.
The Bottom Line: VA Funding Fees
Unless you have an exemption, paying a funding fee is necessary with a VA loan. However, it shouldn’t deter you from applying for this type of mortgage. VA loans offer compelling benefits for eligible veterans, active-duty service members and surviving spouses.
Not sure if a VA loan is right for you? Ask your real estate agent to put you in contact with a lender who specializes in VA loans to learn more and receive personalized guidance.
Taylor has more than a decade of experience in professional journalism. During that time, she has written about a variety of topics, including personal finance, real estate, homeownership and home improvement. She has written for publications and brands such as Bankrate, CNET and Angi.
