For many military service members, veterans, and eligible surviving spouses, VA loans offer a pathway to homeownership with significant advantages, including no down payment and competitive interest rates. However, there is one cost that borrowers must be aware of—the VA loan funding fee. This one-time fee helps sustain the VA loan program, ensuring future generations of service members can access these benefits.
If you’re considering a VA loan, understanding how the VA funding fee works, how it impacts your loan, and whether you qualify for an exemption is crucial. In this guide, we’ll break down everything you need to know with clear explanations, numerical examples, and actionable insights.
What Is the VA Loan Funding Fee?
The VA funding fee is a mandatory charge that helps keep the VA loan program self-sustaining. Unlike private mortgage insurance (PMI) required on conventional loans with less than a 20% down payment, the funding fee allows the VA to continue offering zero-down loans without burdening taxpayers.
Why Is the VA Funding Fee Required?
- Ensures the VA loan program remains self-funded
- Reduces reliance on taxpayer dollars
- Helps the Department of Veterans Affairs (VA) guarantee loans for future borrowers
The fee is paid upfront at closing, but borrowers have the option to finance it into their loan amount, spreading the cost over time.
VA Loan Funding Fee Rates for 2024
The funding fee percentage varies based on the following factors:
- Whether you’re a first-time or repeat VA loan borrower
- Your down payment amount
- The type of VA loan you’re applying for (purchase, refinance, etc.)
Whether you qualify for an exemption
VA Funding Fee Rates
| Loan Type | Down Payment | First-Time Use | Subsequent Use |
| Purchase Loan | 0% | 2.15% | 3.3% |
| Purchase Loan | 5% or more | 1.5% | 1.5% |
| Purchase Loan | 10% or more | 1.25% | 1.25% |
| Cash-Out Refinance | N/A | 2.15% | 3.3% |
| Interest Rate Reduction Refinance Loan (IRRRL) | N/A | 0.5% | 0.5% |
How Does the VA Funding Fee Affect Your Loan?
The VA loan funding fee increases your total loan amount and affects your monthly mortgage payment. Here’s how it impacts a home purchase:
Example Calculation
Assume you’re a first-time VA loan borrower purchasing a $300,000 home with zero down payment:
- Funding Fee (2.15%) = $6,450
- Total Loan Amount = $306,450
- Estimated Monthly Payment (at 6.5% interest, 30-year term) = $1,937
Now, if you’re using a VA loan for the second time, the funding fee increases to 3.3%:
- Funding Fee (3.3%) = $9,900
- Total Loan Amount = $309,900
- Estimated Monthly Payment = $1,960
While the monthly difference may seem small, over a 30-year loan, it can result in thousands of extra dollars paid in interest.
Can You Reduce or Avoid the VA Funding Fee?
Yes! Here are three ways to lower or eliminate the funding fee:
1. Qualify for an Exemption
Some borrowers are exempt from paying the VA funding fee, including:
- Veterans with a service-connected disability (VA-rated 10% or higher)
- Surviving spouses of veterans who died in service or due to a service-related disability
- Active-duty service members with a Purple Heart
- Veterans receiving VA compensation instead of retirement pay
2. Make a Down Payment
Putting down even a small amount reduces the fee:
- 5% down lowers it to 1.5%
- 10% down reduces it further to 1.25%
3. Use a VA IRRRL for Refinancing
If you’re refinancing an existing VA loan, the Interest Rate Reduction Refinance Loan (IRRRL) carries a minimal 0.5% funding fee, saving you money.
Other Costs Associated with VA Loans
Although VA loans do not require PMI, borrowers should be prepared for other standard closing costs, such as:
- Loan origination fees (usually 1%)
- Appraisal fees ($500-$700)
- Title insurance ($1,000-$2,000 depending on location)
- Home inspection fees ($300-$600)
Understanding these costs ensures that you’re financially prepared for your home purchase.
Common Myths About the VA Loan Funding Fee
Myth 1: The VA Funding Fee Must Be Paid in Cash at Closing
✅ Reality: It can be rolled into the loan amount to avoid upfront costs.
Myth 2: VA Loans Are Free for Veterans
✅ Reality: While VA loans have great benefits, the funding fee helps sustain the program.
Myth 3: Every Borrower Pays the Same Funding Fee
✅ Reality: The fee varies based on loan usage, down payment, and exemption status.
Is the VA Loan Funding Fee Worth It?
Despite the funding fee, VA loans remain one of the best financing options for eligible borrowers. Key advantages include:
✔️ No PMI (Private Mortgage Insurance)
✔️ Lower Interest Rates Compared to Conventional Loans
✔️ No Down Payment Requirement
✔️ Flexible Credit Score Requirements
Even with the funding fee, VA loans offer significant savings over time compared to conventional loans with PMI.
Final Thoughts and Next Steps
Understanding the VA loan funding fee helps you make informed financial decisions. Before applying for a VA loan, consider the following steps:
- Use a VA funding fee calculator to estimate your costs
- Check if you qualify for an exemption
- Explore the option of making a down payment to reduce the fee
- Speak with a VA loan specialist to find the best loan strategy for you
If you’re ready to take the next step in homeownership, consult with a real estate professional or VA-approved lender today!