VA Funding Fee: What It Is and How Much You’ll Pay
Military borrowers typically pay a one-time VA funding fee to help offset taxpayers’ cost of home loans backed by the U.S. Department of Veterans Affairs (VA). There are ways to reduce the amount you’ll pay, and veterans with a service-related disability may not have to pay it at all.
What is the VA funding fee?
The VA funding fee is an upfront cost that’s calculated as a percentage of your total VA loan amount. Since the VA home loan program doesn’t require a down payment or mortgage insurance, the VA funding fee helps lower some of the costs of VA loans for U.S. taxpayers.
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 repeat use)
How much is the VA funding fee?
Congress adjusts funding fee rates when 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 purchase and construction loans for active-duty service members, National Guard and Reserve members and veterans.
VA funding fee for purchase and construction loans
|Loan type||Down payment||First-time user||Repeat user|
|Purchase and construction||0%||2.30%||3.60%|
|5% or more||1.65%||1.65%|
|10% or more||1.40%||1.40%|
VA funding fee for refinance loans
You won’t get any break regardless of your equity if you’re doing a VA regular refinance or a VA cash-out refinance loan. However, you’ll only pay a 0.50% funding fee VA interest rate reduction refinance loan (IRRRL).
|Type of loan||First-time user||Repeat user|
|VA regular refinance||2.30%||3.60%|
|VA cash-out refinance||2.30%||3.60%|
How do I pay the VA funding fee?
Follow these three steps to pay your VA funding fee.
- Determine your funding fee amount. The best place to start is with your certificate of eligibility (COE). There are usually two references to the funding fee on your COE. The first tells you whether you’re being charged a first-time or subsequent-user fee. The second tells if you’re exempt from paying the fee because of a service-connected disability.
- Do the math. If you’re not exempt, then match up the loan type with your status in the charts above. For example, if you’re buying a house with no down payment and are a first-time user, your funding fee is 2.30% of your loan amount. A $300,000 home would have a $6,900 funding fee ($300,000 x 0.023 = $6,900).
- Decide how you want to pay the 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 cover it.
The VA funding fee exemption
You’re exempt from paying the funding fee if any of the following are true, according to the VA:
- 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, from a service-related disability or who was completely disabled — and you’re receiving Dependency and Indemnity Compensation.
What other VA loan closing costs do I pay?
Aside from the funding fee, you’ll pay additional VA closing costs, such as a credit report fee, origination fee, title insurance and a flood zone determination. Total lender fees for VA loans are capped at 1% of your loan amount. Other closing costs include the VA appraisal fee, which may be more expensive than home appraisals required for other loan programs.
In addition, there are non-allowable fees that can’t be charged to a VA borrower, including real estate commissions, prepayment penalties and attorney’s fees.
Frequently asked questions
Can I get a refund if I’ve already paid the funding 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.
Is the fee tax-deductible?
The funding fee can be written off as long as you claim it in 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.