The VA funding fee is probably the most misunderstood part of the VA loan program. It trips people up, sometimes scares them off the product entirely, and occasionally makes them feel like the benefit isn't as good as advertised. I want to clear that up.
What is the funding fee?
The funding fee is a one-time charge paid to the Department of Veterans Affairs at closing. It's how the VA sustains the loan guaranty program without using taxpayer money on an ongoing basis. Think of it as the cost of the program paying for itself; rather than charging you mortgage insurance every month like conventional or FHA loans do, the VA collects a single upfront fee.
How much is it?
The amount depends on a few variables: your down payment, whether this is your first time using the VA benefit, and the loan type.
For a VA purchase loan with no money down:
- First use: 2.15% of the loan amount
- Subsequent use: 3.30% of the loan amount
Put 5% down and it drops to 1.50% regardless of first or subsequent use. Put 10% or more down and it drops to 1.25%.
For an IRRRL refinance: 0.50%; significantly lower than a purchase loan.
For a cash-out refinance: 2.15% first use, 3.30% subsequent use.
The fee can be financed into the loan amount rather than paid out of pocket at closing. Most borrowers roll it in.
Who is exempt?
This is important and not everyone knows it. You pay no funding fee if:
- You have a VA service-connected disability rating of any percentage
- You are a surviving spouse of a veteran who died in service or from a service-connected disability
- You are an Active Duty service member who has received a Purple Heart and are closing on or after the date of the award
If you're currently going through the VA disability rating process, it may be worth waiting for the decision before closing, or closing and filing for a refund if the rating comes through afterward. Yes, the VA will refund the funding fee if your disability rating is approved after closing. Flag this with me if you're in the midst of a disability claim with the VA and we'll make sure you get what you're owed.
Does the funding fee make the VA loan less valuable?
Rarely. Let me show you the comparison.
On a $400,000 purchase with no money down, the VA funding fee (first use) is $8,600. That gets financed in, so your loan becomes $408,600. Meanwhile, a conventional loan with 3% down ($12,000 out of pocket) will likely carry PMI of $150–200 per month until you hit 20% equity. At $175/month, you've spent $8,600 in PMI by month 49. And you put $12,000 down to get there.
The VA loan wins that comparison most of the time, even with the funding fee. The exception is a well-qualified borrower with 20% down using a conventional loan. This borrower would have no PMI, no funding fee, and a lower loan balance. That's when the math flips. We can run both scenarios for your situation.
Active Duty
Since you're still actively employed by the military, you'll pay the VA home loan funding fee. However, as mentioned, you can finance this into the loan. Using your VA loan while still serving can not only help you get a great rate, but also save your cash because you do not have to have a down payment. You can get into a home and begin building equity rather than just paying rent.
Bottom line
The funding fee is real, it's meaningful, and it deserves to be understood, not feared. For most Veterans it's worth paying, and for a significant number it doesn't apply at all. If you're not sure whether you're exempt, start with your VA disability rating status. That answer changes everything. I have a calculator on the site to help run the math for you. Use that, then book an appointment so we can work your specific scenario together.
Let's run your VA loan numbers.
Use the calculator to model the funding fee against a conventional alternative, then schedule a strategy session and we'll walk through your specific scenario.