Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
If you’re a veteran in the market for a new house, there’s a good chance you’re considering a U.S. Department of Veterans Affairs (VA) loan. And with good reason: A VA loan can help you finance a home purchase for as little as $0 down, even if your credit isn’t in great shape, without having to pay mortgage insurance.
However, that doesn’t mean there isn’t any cost to this option. If you choose to borrow a VA home loan, you’ll have to pay a VA funding fee. The size of that fee will depend on a few factors, including the size of your down payment.
Before you get too far in the mortgage process, learn more about the VA funding fee and how you should budget for this potential loan cost.
FEATURED PARTNER OFFER
Advertisem*nt
Veterans United Home Loans
Preapproval time:
2 to 3 days
Mortgage rates:
Competitive with the national average
Days to close:
35-day average
On Veterans United's Website
2 to 3 days
Competitive with the national average
35-day average
What Is the VA Funding Fee?
VA loans are issued by private banks and lenders, but they’re partially backed by the Department of Veterans Affairs. That means if a borrower fails to repay the loan, the federal government pays a portion of those funds so that the issuing lender isn’t out the entire remaining balance.
VA loans also are reusable, meaning you can use your full VA entitlement—the maximum amount the Veterans Administration will pay your lender if you default on your mortgage loan—over and over again as long as you pay off the loan every time. This entitlement or guarantee reduces the lender’s risk of approving a loan for a borrower who may have no down payment and a below-average credit score.
In order to support this loan program and ensure it remains sustainable, VA loans require a funding fee. This is a one-time charge that you have to pay at closing on a VA loan used to buy, build, improve or repair a home, or when refinancing an existing VA mortgage, unless you meet certain requirements.
How Much Is the VA Loan Funding Fee?
VA loan funding fees fluctuate over time. As of January 2024, VA loan funding fees for VA-backed purchase and construction loans are as follows:
| Down payment | First-time VA loan borrower fee | Subsequent VA loan borrower fee |
|---|---|---|
Less than 5% | 2.15% | 3.3% |
5% more | 1.5% | 1.5% |
10% or more | 1.25% | 1.25% |
The amount you are charged for the VA funding fee depends on how much money you put toward a down payment, as well as whether or not you’ve used a VA loan before. If you’ve used your full VA entitlement in the past, future uses are considered “subsequent.”
Say, for example, you are a first-time VA loan borrower who puts no money down on a $250,000 loan. You can expect to pay a fee of $5,375 (2.15%). If you put down 10% instead—$25,000—you would be charged a fee of $2,812.50 (1.25%) on the remaining $225,000.
Keep in mind these fees apply to purchase and construction loans only. If you’re doing a VA cash-out refinance, first-time borrowers pay a 2.15% funding fee and subsequent borrowers pay 3.3%.
Meanwhile,VA streamline refinances (also known as Interest Rate Reduction Refinance Loans, or IRRRLs) charge a lower funding fee of just 0.50%.
VA Funding Fee Exemptions
Not all VA borrowers are required to pay the funding fee. As of 2024, you are exempt from the fee if you are:
- Receiving compensation for a service-connected disability
- Entitled to compensation for a service-connected disability, but you’re receiving retirement or active-duty pay instead
- Receiving Dependency and Indemnity Compensation (DIC) as a surviving spouse or child of a veteran
- A service member with a proposed or memorandum rating, before the loan closing date, saying you’re eligible to get compensation because of a pre-discharge disability claim
- An active-duty service member who has received a Purple Heart (must provide evidence before or on the closing date)
It’s possible to get the VA funding fee refunded if you later receive VA compensation for a service-connected disability. The effective date of that compensation has to be retroactive to before the date of your loan closing. For example, if you had a claim pending when you were securing your VA mortgage that was approved after the loan closed, you likely qualify for a refund.
If you aren’t sure whether you qualify for the VA funding fee exemption, you can check your VA loan Certificate of Eligibility (COE). This document will note whether you’re exempt or nonexempt. If you don’t have a COE, you can apply for one on the VA loan website.
How To Pay the VA Funding Fee
The VA funding fee is due at the time the loan closes. You can pay it a couple of different ways.
First, you can choose to pay the entire fee up front as part of your closing costs. That means you need to have the cash on hand at the time of closing. This option is the cheapest in the long run, though it’s not always possible.
If you aren’t able to come up with that much cash at closing, you also have the option of rolling the fee into your loan. This may be the more convenient option, but it also means you’ll pay more over time since the fee is rolled into your principal balance and accrues interest.
Pro Tip
Keep in mind that the VA loan funding fee is not the only cost associated with your mortgage on top of the principal and interest. You may also have to pay other closing costs, such as lender fees, an appraisal fee, points and property taxes. It’s important to consider the total cost of your mortgage—not just the funding fee—when evaluating how much to borrow and how to handle the upfront fees.
Say, for example, you borrow a 30-year, $250,000 VA mortgage at 6.5% interest with no money down. Your monthly principal and interest payment would be $1,580. If you had to pay a VA funding fee of 2.15%, that would be $5,375 out-of-pocket due at closing.
However, if you rolled that $5,375 into your loan balance (for a grand total of $255,750 borrowed), your monthly payments would jump to $1,1616.
Related: Mortgage Calculator—Estimate Your Monthly House Payments
