VA Funding Fee: What To Expect

Getting a VA loan has several upsides. But these benefits come at a price – or rather, a fee. While it’s only a small percentage of the loan amount, the VA funding fee can be a significant cost for borrowers.

So, exactly what is the VA funding fee, how does it work and how much can home buyers using a VA loan expect to pay? Uncover the details before moving forward with a VA loan.

What Is A VA Funding Fee?

The VA funding fee is typically a one-time fee paid to the Department of Veterans Affairs (VA), and it supports the VA home loan program available to qualifying veterans, active-duty service members, people who’ve served in the National Guard and Reserve components, and surviving spouses. Those who apply for a VA loan and make a down payment of less than 5% of the purchase price will pay 2.15% of the loan amount when buying a home for the first time, and they’ll pay a funding fee of 3.3% on subsequent loans. VA borrowers can pay less on the funding fee by putting down more money on the home.

This governmental fee changes periodically based on legislative action by Congress.

How Does The VA Funding Fee Differ From Mortgage Insurance?

The VA funding fee is sometimes referred to as VA loan private mortgage insurance (PMI) or VA loan mortgage insurance. The funding fee is the VA’s version of mortgage insurance – but unlike traditional mortgage insurance, it’s usually a single payment.

The terms “funding fee,” “VA loan PMI” and “VA loan mortgage insurance” are used interchangeably. For the most part, they’re very similar and go toward the same cause: partially protecting the lender and the VA in the event of a home buyer’s mortgage default.

For context, here are the mortgage insurance expectations for two other major national loan programs:

• With a conventional loan, you’ll pay for monthly PMI until you reach 20% equity if your down payment is less than 20%.
• With an FHA loan, you’ll pay a monthly mortgage insurance premium, or MIP, for at least 11 years, in addition to an upfront mortgage insurance payment.

Why Is The VA Loan Funding Fee Assessed?

The Department of Veterans Affairs guarantees VA loans. If a borrower defaults on the loan, the lender is partially protected from the loss because the VA – a federal government agency – insures the loan. The funding fee helps with this cost and other costs related to the VA home loan program, and it ensures that the program remains sustainable.

How Much Is The VA Funding Fee?

For home loans and construction loans, the VA funding fee ranges from 1.25% to 3.3%.

One of the big benefits of a VA home loan is that borrowers can get a mortgage with 0% down. However, the advantage of putting down a larger down payment is that the percentage you put down is directly related to how much you’ll pay for your funding fee. A larger down payment means a funding fee that’s smaller.

VA Funding Fee Chart For Home Loans And New Construction Loans

Our VA funding fee chart for 2024 specifies the percentage you’ll pay based on how much you put down and whether you’ve used the VA loan program before.

2024 VA Funding Fee For Cash-Out And Standard Refinances

For a cash-out refinance, first-time borrowers will pay a 2.15% funding fee, while borrowers who’ve used a VA loan before will pay 3.3%. For an Interest Rate Reduction Refinance Loan (IRRRL), also known as a VA Streamline Refinance – where you’re refinancing one VA loan into another VA loan – the funding fee is 0.5% for all borrowers.

How Is The Fee Paid?

The VA funding fee is due at the time of closing and is included as one of the closing costs a borrower must pay. Your lender sends the paid fee to the VA on your behalf.

The funding fee can be a significant closing cost for VA loan borrowers, but you don’t necessarily have to pay it all out of pocket in one lump sum. You have a few options for how you can pay this fee. These include:

• Paying upfront as a closing cost
• Financing as part of the loan
• Asking the seller to pay it

Rolling the fee into your mortgage loan will increase the size of your loan and your monthly payments, but you’ll avoid paying several thousand dollars upfront.

You can also have the seller pay the fee as a seller concession. According to VA rules, sellers can pay certain costs on behalf of the buyer, as long as these concessions don’t exceed 4% of the loan. However, certain costs – such as payment of the funding fee – aren’t subject to this limit.

Are There Any VA Funding Fee Exemptions?

Not every VA loan borrower must pay the VA funding fee. The following types of people are typically eligible for a funding-fee exemption:

• Individuals who receive compensation for a service-related disability
• Individuals who are eligible for service-related disability pay but receive retirement pay or active service pay
• Surviving spouses who meet the eligibility requirements for the VA home loan program
• Active-duty service members who’ve been awarded a Purple Heart

To find out if you’re eligible for an exemption to the VA funding fee, check your VA loan certificate of eligibility (COE). It will say whether you’re exempt or nonexempt. If you don’t yet have a COE, you can learn how to apply on the VA website.

Are You Eligible For A VA Funding Fee Refund?

If you paid the funding fee but believe you were eligible for an exemption at the time you paid it, you may be eligible for a refund. For example, during the home buying process, you might’ve had a pending disability claim that was approved after closing.

If the effective date of your compensation is prior to the date you closed on your home, you may be able to get a refund on your funding fee.

If you believe you’re entitled to a refund, contact your lender or call your VA Regional Loan Center at (877) 827-3702.

The Bottom Line: Despite VA Funding Fee, Eligible Homeowners Can Benefit From A VA Loan

The VA mortgage program is a popular and valuable benefit of military service. Even with the expense of the funding fee factored in, a VA home loan can be a great option if you’re eligible for the program – whether you’re purchasing a new home or refinancing your home loan.

Are you ready to start your VA loan application? You can apply online or contact one of our Home Loan Experts today at (833) 326-6018.