The VA funding fee is a one-time fee paid to the Department of Veterans Affairs that supports the VA home loan program.
What is the VA funding fee?
The VA funding fee is a one-time payment that the borrower pays when getting a VA loan.
Since there is no down payment requirement, the funding fee helps incentivize lenders in case a veteran defaults on their loan.
Otherwise, it would be too much of a risk for a lender to offer the program.
The funding fee for first-time use is 2.3%, and subsequent use is 3.6%
Want to know the steps to apply for a VA loan? Steps to apply for a VA Home Loan
Will I have to pay the VA funding fee?
If you’re using a VA home loan to buy a home, build a home, assume a loan, or refinance your current mortgage, you’ll need to pay the VA funding fee unless you meet specific requirements.
You won’t pay for a funding fee if:
- You’re receiving VA disability compensation.
- You’re the surviving spouse of a Veteran who died in service or from a service-connected disability
- A service member on active duty who before or on the loan closing date provides evidence of having received the Purple Heart.
According to Veterans Administration: you may be eligible for a refund of the VA funding fee if you’re later awarded VA compensation for a service-connected disability.
However, the effective date of your VA compensation must be retroactive before the date of your loan closing.
How is the VA funding fee paid?
The funding fee is rolled into the loan, you can also pay for it out of pocket, but 95% of our clients roll it in.
You can pay the VA funding fee in either of these ways:
- Finance the funding fee by including it in your loan and paying it off over time with the monthly mortgage payment
- Pay the full fee all at once at closing.
What is the cost of the VA funding fee?
Several factors determine how much you would pay for a funding fee.
These factors include:
- Are you purchasing or refinancing?
- Are you making a down payment?
- Do you receive VA disability compensation?
- Is this your first time using the VA loan benefit or subsequent?
Here is a chart that breaks down the funding fee rate:
VA funding fee isn’t the only closing cost for a VA loan.
There is a misconception that the VA loan doesn’t have any closing costs or that the VA will pay for these costs. Unfortunately, that is not the case.
Whenever you obtain a mortgage, whether you are purchasing, refinancing, or building a home, there are always closing costs involved.
If you are purchasing, the only cost that can be rolled into the loan is the VA funding fee. All other closing costs would need to be paid for at closing.
Related: What are closing costs?
If you are refinancing, you can roll all closing costs into the loan, provided the appraisal comes in at value.