VA funding fee: How much is it and who is exempt?

Mark Henricks
The Mortgage Reports contributor

VA home loans are some of the most attractive mortgage types available in today’s market. Qualifying veterans receive low interest rates and never have to pay mortgage insurance.

Considering these benefits, many assume the VA loan program is supported by taxpayer dollars. That is not the case.

Rather, a VA funding fee is included in most VA loans. The fee goes back into the program to make it self-sustaining and available for future veterans.

Many service members who apply for VA loans ask how these fees are calculated and who pays them. Another important question is whether the fees are due in cash up front.

Fortunately, the veteran does not have to pay the fee in cash. Still, understanding the VA funding fee is important.

Many veterans realize that, even with the fee, VA home loans are typically the most economical loan type with which to buy or refinance a home.

Verify your VA loan program eligibility (Sep 19th, 2020)

VA funding fees are based on loan characteristics

The fees are based on a percentage of the loan amount. It’s not always the same percentage. Fees for home buying range from 1.4% and 3.6% of the loan amount, and the fee to refinance can vary even more widely.

Several factors determine the size of the VA funding fee.

  • Loan purpose
  • Type of home
  • Downpayment amount

Some veterans are exempt from paying a funding fee for any VA home loan. Tell your lender if you are receiving VA compensation for a service-connected disability.

VA funding fee chart

Most veterans will pay a 2.3 percent funding fee when buying a home. This is equal to $2,300 for every $100,000 borrowed.

This fee amount applies to the most popular type of loan: one with no down payment.

The full range of funding fee amounts are as follows.

Note: New funding fees are effective January 1, 2020. See former funding fees here

Home purchase:

Type of Military Service Down Payment Fee for First-Time Use Fee for Subsequent Use
Active Duty, Reserves, and National Guard None 2.3% 3.6%
5% or more 1.65% 1.65%
10% or more 1.4% 1.4%

Cash-out refinances:

Type of Military Service Fee for First-Time Use Fee for Subsequent Uses
Active Duty, Reserves, and National Guard 2.3% 3.6%

VA streamline refinances (IRRRL) & assumptions:

Type of Military Service Fee for First-Time Use Fee for Subsequent Uses
Active Duty, Reserves, and National Guard 0.5% 0.5%

Manufactured home loans not permanently affixed:

Type of Military Service Fee for First-Time Use Fee for Subsequent Uses
Active Duty, Reserves, and National Guard 1.0% 1.0%
Verify your VA loan program eligibility (Sep 19th, 2020)

Funding fees for construction, refinances, manufactured homes, and assumptions

Unlike purchase and construction loans, the size of the down payment does not affect the fee for cash-out refinances.

Regular military veterans pay 2.3% the first time they use the VA loan program for a cash-out refinance and 3.6% after that. Reserves and National Guard veterans pay the same.

These higher fees do not apply for VA streamline refinances, a loan in which the veteran already has a VA loan and is reducing his rate and payment.

In all such cases, the funding fee is just 0.5% of the new loan amount.

For two other types of loans, the type of veteran doesn’t matter. Loans for manufactured homes have fees of 1 percent. A veteran who assumes a VA loan will pay just 0.5 percent.

VA construction loans fees match those of first-time purchase loans for all types of veterans and downpayment amounts.

VA funding fee exemptions

Not all veterans have to pay funding fees for VA loans. For instance, a disabled veteran who is receiving compensation from the VA for a service-connected disability is exempt.

A complete list of funding-fee-exempt applicants is as follows:

  • Veteran receiving VA compensation for a service-connected disability;
  • Veteran entitled to receive VA compensation for a service-connected disability, but receives retirement pay or active service pay
  • Surviving spouse of a Veteran who died in active service or from a service-connected disability
  • Servicemember on Active Duty who provides, on or before date of loan closing, evidence of having been awarded the Purple Heart

Exempt status will most likely be confirmed on the veteran’s Certificate of Eligibility (COE), a document the lender requests from VA to prove the veteran is eligible for a VA loan.

How to pay the funding fee

The VA funding fee is paid when the loan is completed. It is not due when you apply for the loan or at any prior stage of the process.

You have some choices about how to pay. You can pay all or part of it in cash. However, most veterans choose to include it in their loan amount.

Rolling it into the loan eliminates the need for additional cash at closing.

The seller can pay this fee as well as some other fees, including closing costs like appraisal, title, and loan origination fees.

The total of all fees paid by the seller, including funding fees, cannot exceed four percent of the total loan amount. If the funding fee is 2.3 percent, that uses up over half of the allowed amount of seller-paid closing costs. Still it could be a wise choice to have the seller pay the fee for you.

Verify your VA loan program eligibility (Sep 19th, 2020)

Will funding fees change?

Prior to 2020, guidelines for VA funding fees were in effect from 2011-2019.

The newest version of 2020 funding fees are in effect from January 1, 2020 to January 1, 2022, then will be reviewed again.

This is good news for military home buyers who are still a few years away from buying a home. Funding fees will be the same for them as for current VA loan applicants.

Fees and the VA loan program

The VA loan guaranty program gives qualifying veterans access to affordable mortgage loans on attractive terms.

The fees that VA borrowers pay help keep this program financially healthy and available to all veterans.

Understanding how these fees are calculated and who has to pay them can help veteran homebuyers make informed decisions about funding the purchase of a home.

What are today’s VA rates?

Current VA rates are lower than those of conventional loans. Requiring no private mortgage insurance is also an important advantage to VA loans.

Check today’s low VA rates and see if you are eligible. Get a quote from an approved lender with no obligation to continue and very little information needed to get started.

Verify your VA loan program eligibility (Sep 19th, 2020)