VA Funding Fee Explained

The VA funding fee is a one-time payment on VA loans that helps offset the program's cost to taxpayers. Understanding it helps you plan your home purchase.

What Is the VA Funding Fee?

The VA home loan program doesn't require mortgage insurance or a down payment, which creates risk for the government guarantee. The funding fee helps fund the program without relying entirely on taxpayer dollars.

Current Funding Fee Rates (2024)

Purchase and Construction Loans

Down Payment	First Use	Subsequent Use
0% - 4.99%	2.15%	3.3%
5% - 9.99%	1.5%	1.5%
10%+	1.25%	1.25%

Cash-Out Refinance

	First Use	Subsequent Use
All	2.15%	3.3%

Interest Rate Reduction Refinance (IRRRL)

	All Uses
All	0.5%

Example Calculations

$300,000 home, first-time VA loan, no down payment: $300,000 × 2.15% = $6,450 funding fee

$300,000 home, first-time VA loan, 5% down ($15,000): $285,000 loan × 1.5% = $4,275 funding fee

Putting money down reduces the fee—both the percentage rate and the loan amount it's calculated on.

How to Pay the Funding Fee

Option 1: Roll Into Loan

Most buyers add it to the loan amount. On a $300,000 purchase with $6,450 fee, your loan becomes $306,450.

Pros: No upfront cash needed Cons: You pay interest on it over the life of the loan

Option 2: Pay at Closing

Pay the fee in cash at closing.

Pros: Lower loan amount, less interest paid over time Cons: Requires more cash at closing

Option 3: Seller Pays

The seller can pay your funding fee as part of their contribution toward your closing costs (within VA limits).

Who's Exempt from the Funding Fee?

You don't pay the funding fee if you:

• Receive VA compensation for a service-connected disability
• Are entitled to receive VA compensation but receive retirement or active duty pay instead
• Are a surviving spouse of a veteran who died in service or from a service-connected disability
• Are a service member with a proposed or memorandum rating, prior to discharge

The Purple Heart Exemption

As of 2020, Purple Heart recipients are exempt from the funding fee if they're still on active duty at closing.

Applying for Exemption

If you're exempt, your lender will verify through VA systems. If you become disability-rated after closing, you may be entitled to a refund of the funding fee—consult with the VA.

Funding Fee vs. PMI

On a conventional loan with less than 20% down, you'd pay Private Mortgage Insurance (PMI):

• Typically 0.5-1% annually
• Continues until you reach 20% equity
• Adds to monthly payment

The VA funding fee:

• One-time payment (even if financed)
• No ongoing monthly cost
• Often works out cheaper long-term despite higher upfront cost

Planning for the Funding Fee

When budgeting for your VA purchase:

1. Know your funding fee rate based on usage and down payment
2. Decide whether to finance or pay cash
3. Factor into your total cash-to-close calculations
4. Check exemption eligibility

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Questions about VA loans? Contact Greg Franklin or call (559) 816-7780—as a Navy veteran, I understand the process.