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 that 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 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 are 2.3% with a zero down payment, 1.65% with a down payment of 5% to 9.9%, and 1.4% with a down payment of 10% or more.
The funding fees for a cash-out refinance loan are the same as for a purchase loan. The fee for an Interest Rate Reduction Refinance Loan (a VA IRRRL loan) is 0.5% for first-time and subsequent use.
VA funding fee chart for 2020
VA funding fee exemption
You are exempt from the funding fee in 2020 if you are:
Entitled to or are receiving compensation for a service-connected disability.
A surviving spouse of a veteran who died while serving or from a service-connected disability.
An active-duty service member who has received a Purple Heart.
» MORE: See VA loan limits for 2019
You don’t have to pay the VA funding fee out of pocket
If you're not prepared to pay the fee at closing, you can roll the funding fee into your total loan amount.
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.
On a 30-year, $300,000 purchase mortgage at 4% with 0% down, your monthly payment would be about $1,430 for just principal and interest — not taxes, insurance or anything else. The VA funding fee for a first-time VA borrower would be $6,900 (2.3%). But that’s if you paid the fee out of pocket.
By rolling that $6,900 into your loan amount, it adds over $11,000 in total costs over the life of the loan, which would increase your monthly payment.
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.