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VA Funding Fee: What It Is and How Much You’ll Pay
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Home loans backed by the U.S. Department of Veterans Affairs (VA) give military service members a shot at homeownership with no down payment and flexible qualifying standards. However, borrowers typically pay a one-time VA funding fee to help offset the cost of the VA loan program to U.S. taxpayers.
What is the VA funding fee?
The VA funding fee is a one-time closing cost that’s calculated as a percentage of the total VA loan amount. You can roll the fee into your mortgage and repay it over time, or pay the fee upfront at closing. You can also ask the seller to pay for it.
The fee varies based on three factors:
- The down payment amount
- The reason for the loan (buying, building, tapping equity or reducing your interest rate)
- The number of times you’ve used your VA home loan benefits (first-time versus subsequent use)
How much are VA funding fees in 2020?
Congress may adjust funding fee rates if the cost of running the program changes. The most recent rate adjustments went into effect on Jan. 1, 2020. The chart below reflects the rates charged for active-duty service members, Reserve and National Guard members and veterans.
|Type of loan||Down payment||First-time user||Subsequent user|
|Purchase and construction||0%||2.30%||3.60%|
|Purchase and construction||5% or more||1.65%||1.65%|
|Purchase and construction||10% or more||1.40%||1.40%|
|Cash-out and regular refinance||90% maximum loan-to-value (LTV) ratio||2.30%||3.60%|
|Interest rate reduction refinance loan (IRRRL)||No equity required||0.5%||0.5%|
What you need to know about VA refinance funding fees
Having extra equity in your home won’t reduce the funding fee on most VA refinances. You’ll pay the same percentage rate whether you’re tapping equity with a cash-out refinance or paying off a non-VA loan, such as a conventional loan. If you use your VA benefits for the first time to refinance, the rate is slightly lower.
If you currently have a VA loan, you’ll pay only a half-percent percentage point for an IRRRL funding fee. Even better: You won’t need any income documentation or a home appraisal.
Where can I find my funding fee information?
Your certificate of eligibility (COE) provides information about your funding fee. You can request your COE online.
There are usually two references to the fee on the COE. The first one indicates if you’re being charged a first-time use or subsequent user fee. The second reference explains if you’re exempt from paying the fee because of your military service.
By matching up the first or subsequent user fee percentage with the chart above, you can determine how much you’ll pay. For example, a first-time homebuyer making no down payment on a $200,000 home will pay a 2.30% fee of $4,600.
How to determine whether you have to pay the VA funding fee
Not all VA borrowers are required to pay the VA funding fee. Your COE should list the status of any exemption.
According to the VA, you won’t have to pay the fee if any of the following scenarios are true:
- You’re receiving compensation for a service-related disability.
- You’re eligible to earn pay for a service-related disability, but you’re receiving retirement or active-duty pay instead.
- You’re an active-duty service member who, on or before the closing date, can document that you’ve received the Purple Heart.
- You’re a service member with a “proposed or memorandum rating” (received before the closing date) that establishes compensation eligibility because of a pre-discharge claim.
- You’re the surviving spouse of a veteran who died in the line of duty or from a service-related disability, or who was completely disabled — and you’re receiving Dependency and Indemnity Compensation.
Other VA loan closing costs
Aside from the VA funding fee, you’ll pay for typical closing costs, such as a credit report, home appraisal, origination fee, title insurance and a flood zone determination. Total lender fees for VA loans are capped at 1% of your loan amount.
In addition, some fees can’t be charged to a VA borrower, including real estate commissions, prepayment penalties and attorney’s fees.
VA funding fee FAQs
Can I get a refund if I’ve already paid the fee?
You can request a VA funding fee refund if your disability claim was in process before your loan closed. You’ll need to contact the VA regional loan center in your area for details on the process.
How do I pay the funding fee?
In most cases, the funding fee is added to your loan amount and financed over the life of the loan. However, you can also pay for it out of pocket at closing, or ask the seller to pay it.
Is the fee tax-deductible?
The funding fee can be written off as long as you claim it for the same tax year it was paid. You’ll find the tax-deductible amount in box 5 of your mortgage tax form 1098.
Do I pay the fee if I’m assuming a VA loan?
As a buyer, you’ll pay a 0.5% funding fee if you take over liability for a seller’s VA loan through a loan assumption.
Is there a funding fee for a manufactured home?
Yes. Standard funding fees apply if you buy a manufactured home permanently attached to land that you own. If the manufactured home is not permanently attached, the fee is 1% of your loan amount. You may only have to pay a first-time user fee if you take out a new VA loan to buy land and affix your home to it later.
What if I’m eligible for a Native American Direct Loan (NADL)?
If your tribe participates in the NADL program, the funding fee is 1.25% of the loan amount for a purchase loan and 0.5% for a refinance.