What is the VA funding fee?
VA loans have competitive interest rates and more lenient credit standards than conventional mortgage loans, and they don’t require mortgage insurance. Instead, they require most borrowers to pay a VA funding fee. The fee is a one-time charge of 1.25% to 3.3% of the loan amount, which can be paid upfront or rolled into the mortgage, whether it’s for a VA home purchase or a VA refinance.
VA loans are backed by the Department of Veterans Affairs, which repays the lender a portion of the loan if the borrower defaults. The funding fee helps defray the costs of that VA guarantee.
How much is the VA funding fee?
The amount of the funding fee is based on your service, how much you’re putting down and if you’ve ever had a VA-backed loan before. (If you have, a new loan is called “subsequent use.”)
Fees for a first VA purchase loan for regular military are 2.15% with a zero down payment, 1.5% with a down payment of 5% to 9.9% and 1.25% with a down payment of 10% or more. The fees for National Guard and reservists are 2.4%, 1.75% and 1.5%, respectively.
VA funding fee chart for 2019
VA funding fee exemption
In 2019, there are generally two situations when you won’t have to pay a VA funding fee:
If you are entitled to or receiving compensation for a service-connected disability.
If you are “a surviving spouse of a veteran who died in service or from a service-connected disability,” the Department of Veterans Affairs says.
» MORE: See VA loan limits for 2019
You don’t have to pay the VA funding fee out of pocket
For some borrowers, the VA funding fee can be an unexpected expense or one that they aren't prepared to pay. You can roll the funding fee into your total loan amount. While that gets you off the hook for paying out a sizable lump sum upfront, it also means that your monthly payment — and your total loan costs — will be higher.
You can roll the funding fee into your total loan amount.”
Here’s what that looks like:
On a 30-year, $300,000 purchase mortgage at 4%, regular military, with 0% down — and just considering principal and interest, not taxes, insurance or anything else — your monthly payment would be about $1,430. The VA funding fee for a first-time VA borrower would be $6,450 (2.15%). But that’s if you paid the fee out of pocket.
By rolling that $6,450 into your loan amount, it adds over $11,000 in total costs over the life of the loan — and your monthly payment would increase by $30 to about $1,460 a month.
VA funding fee isn't the only closing cost
The VA funding fee won’t be the only charge you’ll face at closing. Mortgage loans come with closing costs and can include discount points, lender fees, an appraisal, credit report, property taxes and more.
You can negotiate some of these fees, and the seller of the home might be persuaded to pay for some of them. And again, you can roll some or all of the costs into your loan amount.
VA funding fee changes in 2020
In 2020, the funding fee will increase to 2.3% for first use and 3.6% for subsequent zero-down loans. The fees will be the same for regular military and reservists. Active-duty service members who have received a Purple Heart will be exempt from the funding fee. These changes, along with the removal of VA loan limits, are part of a new law that will also provide disability benefits for Navy veterans exposed to Agent Orange during the Vietnam War.