July 30, 2021

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What Is a VA Funding Fee?

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A VA Funding Fee is a one-time payment made by current or former military personnel (or their surviving spouses) under the VA home loan Program. This financing fee is paid to the Department of Veterans Affairs and is applicable to loans taken out to purchase, repair, or refinance homes.

How does the VA funding fee work?

  • You only have to pay the VA financing fee once per VA loan.
  • The fee amount can be between 1.4% and 3.6% of the purchase price.
  • These financing fees are applied to every VA mortgage with a few exceptions.
  • The purpose of the fee is to maintain the VA loan program for future military homeowners.
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Getting started

What is the VA funding fee?

The current VA funding fees came into effect on January 1, 2020 and will remain in effect until January 1, 2022. At this point they will be checked. Like mortgage rates, VA financing fees have fluctuated over time.

The biggest factor that determines the percentage a potential borrower will pay is the down payment. The more money you invest, the lower the financing fee. It’s worth noting that there is no minimum credit requirement for the VA.

The fees for a VA purchase loan may vary depending on whether it is the first loan. The following table of VA funding fees shows the current purchase and construction loan rates for veterans, active service members, and members of the National Guard and the Reserve:

deposit Financing fee
First VA loan Less than 5% 2.3%
5% or more 1.65%
10% or more 1.4%
After the first VA loan Less than 5% 3.6%
5% or more 1.65%
10% or more 1.4%

Reduced Interest Rate Refinancing Loans (IRRRLs) – also known as VA Rationalization Loans – have a VA Financing Fee of 0.5%.

For VA Withdrawal Refinancing LoansThe financing fee is 2.3% for first-time use – that is, first-time borrowers – and 3.6% for later use. Down payments do not take this type of loan into account.

How do I pay the VA funding fee?

As a borrower, there are several ways you can take care of your VA financing fee:

  1. Financing the fee by including it in the total loan amount.
  2. Pay the fee up front, along with closing costs, discount points, and lender fees.
  3. Let the seller pay the financing fee.

Most buyers choose to fund the fee to avoid paying thousands of dollars out of pocket. However, by funding the fee, your monthly payments will be higher and you will have to pay interest on the amount over the life of the loan.

Payment of the financing fee by the seller is considered a concession and is approved by the Department of Veterans Affairs provided that the fee does not exceed 4% of the loan amount. Sometimes these concessions can include a commission on real estate agents.

As with most mortgage fees, the VA financing fee is due when the loan is closed. After you pay the fee, your lender will send the money to the VA.

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Getting started

VA Funding Fee Exemptions

Applying for a loan with a mortgage lender who participates in the VA loan program is one of the first things you do during the buying process. Finally, you will need to provide a Certificate of Eligibility (COE) to demonstrate your eligibility for the VA loan benefit.

This Department of Veterans Affairs certificate states whether or not you will have to pay the VA Funding Fee.

The exemption from paying the VA loan finance fee is limited to a handful of groups. However, anyone applying for a VA loan should check to see if they are eligible for an exemption as the rules on this were not updated until 2020.

The following groups are excluded from paying the VA Funding Fee:

  • Veterans currently receiving VA Compensation for Service-Related Disability.
  • Service members who are eligible for service-related disability compensation but are instead receiving retirement or service compensation.
  • Veterans who are eligible for disability allowance if they have not received retirement benefits.
  • Surviving spouse of a veteran who died in service or of disabilities related to military service.
  • An active service member who has been awarded a Purple Heart, a military award. Purple Heart recipients were wounded while serving in the United States.

Disability claims

In some cases, a person’s eligibility for exemption is not clear. Only the Department of Veterans Affairs can make an exemption decision.

If exemption status has not been established and / or you are eligible for pre-release disability as of the cut-off date, the lender will collect the financing fee and send it to the VA. If you receive disability allowance after graduation, you may be eligible for a refund of your VA funding fee.

Other resources on VA funding fees

When applying for a loan through the VA home loan program, a VA financing fee is part of the equation whether or not you are exempt.

If your loan is going to be used for the first time, you may need more information. We strongly encourage you to read the following articles for the latest information on VA Loans and other related topics.

resources
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