U.S. Department of Veterans Affairs (VA) loans are one of the most valuable benefits available to veterans, active duty military, and surviving spouses.
VA home loans are guaranteed by the VA, allowing lenders to offer eligible borrowers exclusive benefits that make it easier to qualify for a mortgage. These benefits include:
- 0% down
- No private mortgage insurance (PMI)
- Lower interest rates
- Less stringent credit requirements
- Limited closing costs
What is the VA Funding Fee?
To help offset the costs to taxpayers, most VA loan borrowers will be required to pay a VA funding fee.
Many first-time homebuyers and first-time VA loan applicants wonder how this fee will affect their mortgage or impact their VA home loan rate. Here are answers to some of the most frequently asked questions we get about the VA funding fee.
How Much is the VA Funding Fee?
In February 2023, the U.S. Department of Veterans Affairs announced a reduction in the VA funding fee for purchases, new constructions, and cash-out refinance VA loans closed on or after April 7, 2023.
The new VA funding fee is about 2.15 percent of the loan amount. However, the fee can range from 0.5 percent to 3.3 percent depending on the type of loan, the down payment amount, and whether you have used your VA loan benefit previously.
Table 1: VA Purchase or Construction Loans
|
|
Down Payment Amount
|
Funding Fee Percentage
|
|
First Use
|
Less than 5%
|
2.15%
|
| |
5% or more
|
1.5%
|
| |
10% or more
|
1.25%
|
|
Subsequent Use
|
Less than 5%
|
3.3%
|
| |
5% or more
|
1.5%
|
| |
10% or more
|
1.25%
|
Source: https://www.benefits.va.gov/homeloans/documents/circulars/26-23-06-exhibitb.pdf
How is the VA Funding Fee Calculated?
The VA funding fee is a percentage of the loan amount, not the purchase price. For example, if you buy a $200,000 home and put down $6,000 (3 percent), your VA funding fee will be $4,171, or 2.15 percent of $194,000.
Can I Lower the Amount of the Funding Fee I Owe?
Yes! You can reduce the funding fee percentage for VA purchase or construction loans by putting more money down. A first-time VA loan borrower who puts down less than 5 percent will pay a funding fee equal to 2.15 percent of the loan amount. However, if that same borrower makes a 15 percent down payment, the funding fee percentage drops to 1.25 percent.
Does Every VA Loan Borrower Have to Pay the Funding Fee?
Although most VA loan recipients are required to pay the VA funding fee, there are some exceptions.
Your lender will review your certificate of eligibility or your verification of VA benefits form to determine whether you are exempt from the funding fee.
You may be exempt from the VA funding fee if:
- You receive VA compensation for a service-connected disability.
- You are entitled to compensation for a service-connected disability, but you receive retirement or active-duty pay.
- You are the surviving spouse of a veteran who died in service or from a service-connected disability, or who receives dependency and indemnity compensation (DIC) because they are disabled.
- You are rated eligible for compensation because of a pre-discharge disability claim (must be provided before closing).
- You are on active duty and received the Purple Heart (you must provide evidence before or on the loan closing date).
How Much Is the Funding Fee If I’m Refinancing?
The VA funding fee varies depending on the type of refinance and whether you have used the benefit previously.
For interest rate reduction refinance loans, the funding fee is 0.5 percent. However, if you are doing a cash-out refinance, the fee is 2.15 percent the first time and 3.3 percent for each subsequent use.
How Do I Pay the VA Funding Fee?
There are several ways to pay the VA funding fee. One option is to pay it off in a lump sum at closing. However, most borrowers choose to roll the fee into the mortgage and pay it off over the life of the loan. You may even be able to negotiate for the seller to pay the funding fee as part of their closing costs.
Talk to a VA Home Loan Specialist
FFB Mortgage Lenders specializes in VA loans and we are proud to be nationally recognized as one of the top VA lenders in the country. Our team of mortgage lenders has been in the game for decades, which means we can help you navigate not only VA funding fees but also all of the unique circumstances that military families face, including permanent change of station transfers, secondary entitlement, and more.
Download VA Home Loans 101 for a comprehensive guide to getting the most out of your VA home loan benefit.
The content on this site is intended for informational purposes only and should not be considered accounting, legal, tax, or financial advice. First Federal Bank recommends that customers conduct their own research and consult with professional legal and financial advisors before making any financial decisions. Links to third-party websites may be provided for your convenience; however, First Federal Bank does not guarantee the reliability, accuracy, or safety of the information, products, or services offered on these external sites. We are not liable for any damages resulting from the use of these links, and we do not investigate, verify, or endorse the content or opinions expressed on any third-party sites.
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