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The VA funding fee
The funding fee is the one real cost of a VA loan, and it is also the thing most often gotten wrong. It is not an origination charge, it does not go to your lender, and a large share of borrowers do not pay it at all.
Written by Sean Goudreau, Mortgage Loan Officer · NMLS #326155 · Rate
What is the VA funding fee?
The VA funding fee is a one-time charge paid to the Department of Veterans Affairs on most VA loans. It ranges from 0.5% to 3.3% of the loan amount, depending on the loan type, your down payment, and whether you have used the benefit before. Most borrowers finance it into the loan. Veterans with a VA disability rating of 10% or higher pay nothing.
What is the funding fee actually paying for?
The program itself. The funding fee goes to the Department of Veterans Affairs, not to your lender, and it is what keeps the VA loan program running without taxpayer subsidy. The fee covers losses on the loans the VA guarantees, which is why the benefit can exist with no down payment and no mortgage insurance.
That framing matters when you compare loans. The funding fee is not a lender charge and it is not negotiable. Every VA lender charges the same fee because none of them set it. What varies between lenders is the rate, the origination charges and the quality of the work, and those are the things worth shopping.
It is also worth putting in proportion. A borrower paying 2.15% once is usually paying less over the life of the loan than the same borrower would pay in mortgage insurance on a conventional loan with the same down payment. The funding fee is visible and the mortgage insurance is not, which makes the VA loan look more expensive than it is.
How much is the VA funding fee?
The rate depends on three things: what kind of loan you are doing, how much you are putting down, and whether this is your first use of the benefit. Purchase loans carry the most variation, and refinances have their own rules that are explained further down.
Purchase loans
| Down payment | First use | Subsequent use |
|---|---|---|
| Less than 5% | 2.15% | 3.3% |
| 5% to 9.99% | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
Refinance loans
| Loan type | First use | Subsequent use |
|---|---|---|
| Streamline (IRRRL) | 0.5% | 0.5% |
| Cash-out refinance | 2.15% | 3.3% |
Two things in those tables deserve more attention than they usually get.
The subsequent-use penalty disappears at 5% down. Going from first use to subsequent use on a zero-down purchase moves you from 2.15% to 3.3%, which is a real jump. Put 5% down and both first and subsequent use pay 1.5%. If you have used the benefit before and have some cash available, that threshold is worth modeling rather than defaulting to zero down.
National Guard and Reserve members pay the same rates as active duty. There used to be a premium, and it was eliminated by the Blue Water Navy Vietnam Veterans Act effective January 1, 2020. Some calculators and articles still ask for your service type. If a lender quotes you a different rate because you served in the Guard, they are working from a chart that is six years out of date.
Calculate your funding fee
Check the exemption box to see what the fee costs you, or does not.
Total financed $0
Important information about this calculator
The calculator on this page is provided for illustrative and educational purposes only. All examples are hypothetical and are for illustrative purposes only. This information is not intended to be an offer or a solicitation of an offer for a loan.
The calculations made by this tool are based on the information you input and on the assumption that the interest rate does not change during the loan term. Results may vary based on lender guidelines, market conditions, and individual financial circumstances.
Actual loan terms, payment amounts, and interest rates will be determined based on your credit history, income, assets, property value, and other factors. Monthly payment examples do not include amounts for taxes and insurance premiums, and actual payment obligations may be greater.
VA loans require a VA funding fee which varies based on down payment percentage, whether you've used your VA loan benefit before, and your military category. Veterans with service-connected disabilities may be exempt from the funding fee.
Who is exempt from the VA funding fee?
More veterans qualify for the exemption than most people expect, and in some markets more borrowers are exempt than not. It is not obscure and it is not hard to qualify for. It just gets missed, because nobody asks.
A VA disability rating of 10% or higher
This is the big one. Any service-connected disability rating at or above 10% exempts you from the funding fee entirely. Not reduced, eliminated. On a $300,000 zero-down purchase that is $6,450 that does not get added to your loan.
It does not matter how minor the rating is or what it is for. Ten percent is ten percent.
Purple Heart recipients on active duty
Active duty service members who have received a Purple Heart are exempt. This was added by the Blue Water Navy Vietnam Veterans Act and it applies to purchase and refinance loans alike.
Eligible surviving spouses
The surviving spouse of a service member who died in service or from a service-connected disability is exempt, as is a spouse receiving Dependency and Indemnity Compensation.
Pending claims and retroactive ratings
This is where money gets left behind. If you have a disability claim pending at closing, you are not exempt at the time. But if the rating is later granted with an effective date before your closing, you can apply for a refund of the funding fee you paid.
That refund is not automatic. Somebody has to file for it. If you closed a VA loan while a claim was in process and the rating came through afterward, it is worth checking.
How the funding fee works on a refinance
The same fee applies, but two things change and both catch people out.
The fee is charged on the new loan amount, not on a purchase price. On a cash-out that new balance includes the equity you are pulling out plus any costs you finance, so the fee is calculated on a number larger than what you currently owe. A $360,000 cash-out at 2.15% carries a $7,740 fee, and it comes out of the proceeds unless you pay it separately.
The streamline is the cheapest loan in the program. An IRRRL charges 0.5%, which is less than a quarter of what a zero-down purchase costs. It gets mistaken for a lender fee often enough that it is worth saying plainly: it is the same VA funding fee, just at the lowest rate the program offers, and no lender can charge you a different one.
The exemption is worth more on a refinance than anywhere else, for the same reason the fee can be larger. If you have a disability rating and you are refinancing a substantial balance, that is thousands of dollars that does not come off your proceeds.
Do you pay the funding fee at closing?
You can, but most people do not. The fee is usually financed into the loan, which means it is added to the balance rather than paid in cash.
Financing it is the default for a reason. The whole point of the benefit for most borrowers is buying without a large cash outlay, and requiring 2.15% at the table would undercut that. The tradeoff is that you pay interest on it over thirty years.
A seller can also pay it. The funding fee counts toward the seller concessions a VA seller is permitted to make, which is worth remembering in a market where sellers are giving credits. It is not a common ask, but it is allowed.
One thing that does not happen: the funding fee is not refundable if you sell early. It is charged once, at closing, and financing it means you have borrowed it.
Where the funding fee costs people money
Almost never through the fee itself. Nearly always through something adjacent.
The exemption gets missed. A borrower with a rating never mentions it, the lender never asks, and the fee gets financed into a loan that should not have carried it. This is the single most common expensive mistake in a VA file, and it is entirely preventable by one question in the first conversation.
The COE gets taken at face value. Your Certificate of Eligibility states your exemption status. If your rating is recent, that status may not be current. It is worth verifying rather than assuming the document caught up.
Zero down gets treated as automatic. For a first-use borrower it usually is right. For a subsequent-use borrower it can be the more expensive choice over thirty years, because 5% down cuts the fee from 3.3% to 1.5% on top of shrinking the balance.
The fee gets compared to the wrong thing. Borrowers weigh the funding fee against a conventional loan with no PMI, which is a comparison against 20% down. Against a realistic conventional alternative with the same cash, the VA loan usually wins on total cost even carrying the fee.
Frequently Asked Questions
Is the VA funding fee tax deductible?
It has been treated as deductible mortgage insurance in some tax years, but that deduction has expired and been retroactively renewed multiple times, so the current answer depends on the tax year and on legislation. Ask a tax professional rather than a lender, including this one.
Can the VA funding fee be refunded?
Yes, in one situation. If you had a disability claim pending when you closed and the rating was later granted with an effective date before your closing date, you can apply for a refund. It is not automatic and you have to request it.
Does the VA funding fee count toward closing costs?
It is a closing cost in the sense that it is charged at closing, but it sits apart from lender fees and third-party charges. Most borrowers finance it rather than paying it, so it does not usually affect cash to close.
Do Guard and Reserve members pay a higher VA funding fee?
Not since January 1, 2020. The Blue Water Navy Vietnam Veterans Act eliminated the premium. Guard and Reserve members pay identical rates to active duty. Older charts and some calculators still show a difference.
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Sean Goudreau
Mortgage Loan Officer
NMLS #326155
Rate
465 Waverley Oaks Rd Ste 200
Waltham, MA 02452
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