What Is the VA Funding Fee?

The VA funding fee is a one-time payment that borrowers must pay when using a VA home loan, a mortgage program backed by the U.S. Department of Veterans Affairs. This fee helps offset the costs of administering the VA loan program, ensuring that it remains sustainable for future military service members, veterans, and eligible surviving spouses. Unlike private mortgage insurance (PMI), which is typically required for conventional loans with low down payments, the VA funding fee allows the VA loan program to function without an ongoing mortgage insurance requirement, reducing long-term costs for borrowers.

How the VA Funding Fee Works

The VA funding fee is calculated as a percentage of the loan amount and varies based on factors such as the type of VA loan, the borrower’s military service category, the size of the down payment, and whether the borrower has used a VA loan before. First-time borrowers generally pay a lower fee than those who are using the VA loan benefit for a second or subsequent time.

For purchase loans and cash-out refinance loans, the fee typically ranges from 1.25% to 3.3% of the loan amount. Borrowers who put down at least 5% reduce their funding fee, and those who put down 10% or more receive an even lower rate. For Interest Rate Reduction Refinance Loans (IRRRLs), also known as VA streamline refinances, the funding fee is set at 0.5%.

This fee can be paid upfront at closing or rolled into the total loan amount, spreading the cost over time. While rolling the fee into the loan avoids an immediate out-of-pocket expense, it does increase the overall loan balance and interest paid over time.

VA Funding Fee Rates for 2024

The funding fee rates are periodically adjusted by the federal government. As of 2024, the VA funding fee rates for purchase and construction loans are:

First-time VA loan users

• 0% down payment – 2.15%
• 5% or more down payment – 1.5%
• 10% or more down payment – 1.25%

Subsequent VA loan users

• 0% down payment – 3.3%
• 5% or more down payment – 1.5%
• 10% or more down payment – 1.25%

For VA cash-out refinance loans, the funding fee is 2.15% for first-time use and 3.3% for subsequent use. For IRRRLs, the fee remains at 0.5%, making it an affordable option for veterans looking to lower their interest rates.

For Native American Direct Loans (NADLs), the funding fee is a flat 1.25%, and for VA loan assumptions, the fee is 0.5%.

Exemptions from the VA Funding Fee

Certain borrowers are exempt from paying the VA funding fee, which can provide significant savings. Exemptions apply to:

• Veterans receiving VA disability compensation for a service-connected disability.
• Veterans who would be eligible for VA disability compensation but are receiving retirement or active-duty pay instead.
• Surviving spouses of veterans who died in service or due to a service-connected disability.
• Active-duty service members who have received a Purple Heart before closing on the loan.

Borrowers should verify their exemption status with the VA Certificate of Eligibility (COE) and inform their lender before closing to avoid unnecessary charges.

Why the VA Funding Fee Matters

The VA funding fee serves a crucial role in the sustainability of the VA loan program. Without it, the program would require additional taxpayer funding. Instead, the fee allows the VA to guarantee loans without ongoing insurance costs, providing eligible borrowers with lower interest rates and no private mortgage insurance requirements.

For veterans and active-duty service members, the VA loan remains one of the most powerful home financing options available, offering 100% financing, competitive interest rates, and flexible qualification guidelines. However, understanding the funding fee is essential, as it affects the overall cost of the loan. Borrowers who can make a larger down payment can reduce their fee, and those who qualify for exemptions can avoid it altogether.

The Bottom Line

The VA funding fee is a mandatory charge that helps maintain the VA loan program while allowing it to remain affordable and accessible to military personnel, veterans, and eligible surviving spouses. The amount varies based on loan type, down payment, and prior VA loan usage, but exemptions exist for those with service-connected disabilities or other qualifying conditions. By understanding the funding fee and how it impacts loan costs, VA borrowers can make informed financial decisions when purchasing or refinancing a home.