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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.”)
Funding fee for purchase loans or construction loans
Fees for a first VA purchase loan or construction loan are 2.15% of the loan amount with a down payment less than 5%, 1.5% of the loan amount with a down payment of 5% to 9.9% and 1.25% of the loan amount with a down payment of 10% or more.
Funding Fee — Purchase or Construction Loan, First Use
0% to 5%.
5% to 9.9%.
10% or more.
Funding fees for a subsequent VA loan are 3.3% with a down payment less than 5%, 1.5% with a down payment of 5% to 9.9% and 1.25% with a down payment of 10% or more.
Funding Fee — Purchase or Construction Loan, Subsequent Use
0% to 5%.
5% to 9.9%.
10% or more.
Funding fee for VA cash-out refinances
The funding fees for a VA cash-out refinance loan are 2.15% for the first use and 3.3% for any subsequent use.
Funding fee for Interest Rate Reduction Refinance Loans
The fee for an Interest Rate Reduction Refinance Loan, or VA IRRRL loan, is 0.5% for first-time and subsequent use.
VA Refinance Loan
Cash-out refinance — first use
Cash-out refinance — subsequent use
VA IRRRL Loan
VA funding fee exemptions
You are exempt from the funding fee in 2023 if you are:
Eligible for or currently receiving compensation for a service-connected disability.
A surviving spouse of a veteran who died while serving or from a service-connected disability.
A Purple Heart recipient.
» MORE: See VA loan limits for 2023
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Paying the VA funding fee
There are two options for paying the funding fee. You can either pay it all at once at closing, or you can roll the cost into your total loan amount and pay it over time.
While rolling the fee into your total loan amount 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 slightly higher, though this can be a modest amount.
On a 30-year, $300,000 purchase mortgage at 5.7% with 0% down, your monthly payment would be $1,741 for just principal and interest — not taxes, homeowners insurance or anything else. The VA funding fee for a first-time VA borrower would be $6,450 (2.15% of $300,000). But that’s if you paid the fee out of pocket.
By rolling that $6,450 into your loan amount, your monthly payment would be $1,779 — about $40 more.
You could negotiate with the seller to have them pay the funding fee; however, success is uncertain if the market is such that sellers have more bargaining power than buyers.
The amount that you pay toward the funding fee may also be tax deductible. If you pay it all at once, you can deduct the full amount. Otherwise, you’ll deduct the amount of your monthly payments so far for the year.
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VA funding fee vs. mortgage insurance
With a conventional mortgage, borrowers who put down less than 20% are typically required to pay private mortgage insurance, or PMI, each month until they reach 20% equity. According to Freddie Mac, this is generally between $30 and $70 per month for every $100,000 borrowed.
The VA funding fee differs from PMI because non-exempt borrowers are required to pay something, regardless of their down payment or how much equity they accrue. These costs are also different in that VA borrowers have the option to pay a flat fee rather than taking on higher monthly payments.
Getting a refund for your funding fee
If you get a VA loan and are later approved for retroactive disability compensation, the payments you’ve made toward the funding fee could be refunded. If you believe this applies to you, you’ll want to contact your regional VA loan center for a review of your case.
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, which can include discount points, lender fees, an appraisal, credit report, property taxes and other fees.
You can negotiate some of these fees, and the seller of the home might be persuaded to pay for some of them (though they legally cannot pay more than 4% of the total home loan in seller concessions, including the funding fee). And again, you can roll some or all of the costs into your loan amount.
A previous version of this article misstated the basis of funding fees for first VA purchase or construction loans because of an editing error. The fees are based on loan amounts. This article has been corrected.