VA loans offer benefits like no PMI, but include a funding fee, impacting overall cost. VA Loans and Funding Fee Comparison shows first-time use is typically 2.15%, rising to 3.3% for subsequent use. Exemptions exist for disabled veterans. Weigh upfront costs against long-term savings, and consider down payments to reduce the fee.
What Is the VA Loan Funding Fee?
The VA loan funding fee is a one-time payment required by the Department of Veterans Affairs (VA) to support the VA loan program. While this fee helps sustain the program, it can significantly affect your loan’s overall cost.
- First-time use: Typically 2.15% of the loan amount for regular military borrowers with no down payment.
- Subsequent use: Increases to 3.3% for borrowers using their VA loan benefits multiple times.
- Exemptions: Veterans with service-connected disabilities and certain surviving spouses are exempt from the funding fee.
VA Loan With the Funding Fee: Pros and Cons
Pros:
✅ No private mortgage insurance (PMI)
✅ Competitive interest rates
✅ Lower credit score requirements
✅ Flexible underwriting standards
Cons:
❗ Increased upfront costs due to the funding fee
❗ Higher monthly mortgage payments if rolled into the loan amount
VA Loan Without the Funding Fee: Pros and Cons
Pros:
✅ Reduced upfront costs
✅ Lower overall mortgage debt
✅ Faster equity accumulation
Cons:
❗ Must meet exemption criteria (e.g., service-related disability)
❗ Limited eligibility reduces accessibility for many borrowers
Cost Comparison Example
Suppose you purchase a $300,000 home with a VA loan:
Scenario |
Loan Amount |
Funding Fee (2.15%) |
Total Loan Cost |
| With Funding Fee | $300,000 | $6,450 | $306,450 |
| Without Funding Fee | $300,000 | $6,450 | $300,000 |
Over a 30-year mortgage at a 5% interest rate, this $6,450 difference could result in over $12,000 in additional payments due to interest accumulation.
Breaking Down the Funding Fee Rates
The VA funding fee rate can vary based on several factors:
Down Payment Amount:
- 0% down payment: 2.15% for first-time borrowers, 3.3% for repeat borrowers.
- 5% down payment or more: 1.5% funding fee.
- 10% down payment or more: 1.25% funding fee.
Service Type:
- Active Duty vs. National Guard/Reservist: National Guard and Reservists often pay a slightly higher funding fee than active-duty service members.
Funding Fee Exemption Criteria
Certain individuals may qualify for a funding fee waiver, including:
- Veterans receiving VA disability compensation
- Surviving spouses of veterans who died in service or due to a service-related disability
- Active-duty service members awarded the Purple Heart
Is Paying the Funding Fee Worth It?
Consider the following factors when deciding if the funding fee is manageable:
- Loan Amount: Larger loans amplify the funding fee’s impact.
- Exemption Eligibility: Check if you qualify for a funding fee waiver.
- Financial Goals: If you plan to sell the property quickly, paying the funding fee upfront may be less impactful.
Strategies to Minimize the Funding Fee Impact
✅ Make a larger down payment to reduce the fee percentage.
✅ Consider negotiating closing costs to offset the fee.
✅ Verify your eligibility for exemption status.
✅ Use VA loan calculators to estimate total costs with and without the funding fee.
Key Considerations for Homebuyers and Investors
- First-time Homebuyers: Understanding how the funding fee affects affordability is crucial. Factor it into your total budget calculations.
- Investors: Since VA loans are for primary residences only, ensure the property aligns with your investment strategy.
- Real Estate Professionals: Educate clients about funding fee exemptions and strategies for reducing costs.
Conclusion
For many veterans and active-duty service members, VA loans provide exceptional benefits even with the funding fee. However, if you qualify for an exemption or can mitigate the fee’s impact through strategic planning, you may unlock significant savings. Use online calculators and consult with mortgage professionals to determine the best course of action for your financial future. By understanding the funding fee’s impact, you can make informed decisions that align with your budget, goals, and eligibility.
Frequently Asked Questions
1. Can I finance the funding fee into my loan?
Yes, the VA allows borrowers to roll the funding fee into their total loan amount. While this reduces upfront costs, it will increase monthly payments and total interest paid.
2. How does the funding fee impact my closing costs?
The funding fee is typically added to your closing costs unless financed into the loan. Including it upfront may require additional cash on hand.
3. Is the VA funding fee refundable?
If you later qualify for an exemption after closing, the VA may refund the funding fee.
4. Are there limits on how often I can use my VA loan benefits?
No, VA loan benefits are reusable, but repeat borrowers will face a higher funding fee unless they make a down payment.