What is the VA funding fee, and who is exempt from paying it?
The short answer
The VA funding fee is a one-time charge that keeps the VA loan program running in place of monthly mortgage insurance. On a purchase, it's 2.15% of the loan for first use with less than 5% down, lower with more down, and 3.3% on later use with less than 5% down. Veterans receiving VA disability compensation, some Purple Heart recipients, and surviving spouses receiving DIC are exempt. The Mortgage Advisory shows the fee, or your exemption, on your Loan Estimate.
How much is the funding fee?
For purchase loans (rates in effect since April 7, 2023):
| Down payment | First use | Later use |
|---|---|---|
| Less than 5% | 2.15% | 3.3% |
| 5% or more | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
Other VA loans:
- VA streamline refinance (IRRRL): 0.5%. See the VA streamline refinance.
- Cash-out refinance: 2.15% first use, 3.3% later use
- Loan assumption: 0.5%
Do I have to pay it in cash?
No. Most veterans add it to the loan, so nothing is due at closing. You can also pay it in cash, or the seller can pay it as part of seller concessions.
Who is exempt?
You don't pay the funding fee if you:
- Receive VA compensation for a service-connected disability
- Are eligible for that compensation but receive retirement or active-duty pay instead
- Are a surviving spouse receiving Dependency and Indemnity Compensation (DIC)
- Are a service member with a proposed or memorandum disability rating before closing, based on a pre-discharge claim
- Are an active-duty service member with a Purple Heart, shown on or before closing
Your Certificate of Eligibility shows whether you're exempt. If you get a disability rating after closing that goes back to before your closing date, you may be able to get a refund of the fee.
How does it compare with mortgage insurance?
FHA and low-down-payment conventional loans charge monthly mortgage insurance. VA charges the funding fee once and no monthly mortgage insurance, which is a big part of why VA payments are often lower.
Example scenario (illustrative)
A first-time VA buyer in El Paso buys a $350,000 home with 0% down. The 2.15% funding fee is about $7,525, added to the loan. A second veteran buying the same home has a 30% disability rating, pays no funding fee, and starts with a loan about $7,500 smaller.
Our take
Always check your exemption before you close; I've seen veterans pay a fee they didn't owe. If you have a pending disability claim, tell me early, because timing can matter. I'll show the fee, or your exemption, line by line on your Loan Estimate.
Sources
Ace Ausar, Mortgage Banker · NMLS #1143018
The Mortgage Advisory, Inc. · NMLS #1549739
Reviewed by Ace Ausar, NMLS #1143018 · Updated
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