VA Funding Fee Explained: Calculating Costs & Payment Options

by | VA Loans | 1 comment

Navigating the world of home buying can be daunting, especially when you’re a veteran or active military member. One term you’ll encounter is the VA funding fee, a critical aspect of VA home loans. You might wonder what it is and how it affects your mortgage. Well, you’re in the right place to demystify this essential component.

The VA funding fee is a one-time payment that borrowers must pay on a VA home loan. It’s designed to offset the taxpayers’ cost since VA loans don’t require down payments or private mortgage insurance. Whether you’re buying your first home or refinancing, understanding this fee is key to planning your finances. Let’s dive deeper into what the VA funding fee entails and why it’s crucial for your home buying journey.

Understanding the VA Funding Fee

The VA funding fee is a mandatory, one-time payment on VA home loans designed to reduce the loan’s cost to taxpayers. This fee applies to both purchasing and refinancing loans and varies based on the type of loan, the borrower’s military service, and whether it’s the first or subsequent use of a VA loan benefit. Essentially, it helps fund the VA home loan program, ensuring it remains viable for future veterans and military members.

How It’s Calculated

Calculating the VA funding fee involves several factors including loan type, usage frequency, and the borrower’s service type. The fee typically ranges from 1.4% to 3.6% of the loan amount, with lower fees for first-time users and members of the National Guard or Reserve paying slightly higher rates than those for regular military members. Importantly, borrowers have the option to finance the fee with their loan amount or pay it upfront during closing.

Exemptions to the Fee

Not all borrowers are subject to the VA funding fee. Veterans receiving VA compensation for service-connected disabilities, surviving spouses of veterans who died in service or from service-connected causes, and service members eligible for VA compensation due to pre-discharge disability evaluation are exempt. Understanding these exemptions can significantly affect your financial planning and potential savings when acquiring a VA loan.

Impact on Borrowers

Financially, the VA funding fee influences your total loan amount and, subsequently, your monthly mortgage payments. Financing the fee means a higher loan amount, which translates into higher monthly payments. However, the absence of required down payments and private mortgage insurance (PMI) for VA loans often balances this out, making the overall loan affordable for eligible borrowers.

Knowledge of the VA funding fee is essential for making informed decisions about VA home loans. Whether you’re buying a home for the first time or refinancing, understanding this fee and how it affects your loan can help you better plan your finances and maximize the benefits of your VA loan entitlement.

Factors Influencing the VA Funding Fee

The VA funding fee isn’t a one-size-fits-all charge. Several factors play a crucial role in determining the exact amount you’ll pay. Understanding these factors ensures you’re better prepared financially when applying for a VA home loan. Here’s a closer look at what influences your VA funding fee.

Type of Military Service

Your branch of the military affects the funding fee percentage. Generally, veterans, active duty service members, and members of the National Guard or Reserves have different rates. Active duty personnel usually incur a slightly lower fee compared to members of the National Guard or Reserves.

Down Payment Amount

Making a down payment can significantly reduce your VA funding fee. Those who opt to make a down payment of at least 5% but less than 10% will see a reduced fee. The fee decreases even further for down payments 10% or above. No down payment requires the highest fee percentage.

First-Time or Subsequent Use

The fee varies depending on whether it’s your first time using a VA loan or if you’re utilizing the benefit again. Subsequent uses of the VA loan benefit typically incur a higher funding fee than the first use. This distinction encourages responsible use and ensures the program’s longevity.

Type of Loan

The purpose of your loan also influences the fee. Purchase loans and construction loans have different rates compared to refinancing loans. Specifically, the Cash-Out refinancing option may have a different fee compared to the Interest Rate Reduction Refinance Loan (IRRRL).

Exemptions and Discounts

Certain individuals are exempt from the VA funding fee. Veterans receiving disability compensation for service-connected conditions, surviving spouses of veterans who died in service or from service-connected disabilities, and service members eligible for compensation due to pre-discharge conditions do not pay this fee.

Each of these factors contributes to how your VA funding fee is calculated. By taking these into consideration, you can accurately estimate the fee and plan your finances accordingly when taking advantage of the VA home loan program.

Calculating the VA Funding Fee

Understanding how to calculate the VA funding fee is crucial in planning your finances when applying for a VA home loan. The fee varies depending on several factors, including the type of service, down payment amount, and whether it’s your first time using the VA loan benefit. Here, you’ll find a guide to help you estimate the fee you might expect to pay.

Determining the Fee Percentage

The VA funding fee percentage depends on your type of military service, the size of your down payment, and whether you are using the VA loan benefit for the first time. Veterans, active-duty service members, and National Guard or Reserve members typically pay different rates. For instance, first-time users who make no down payment might pay a higher fee than those making a down payment of 10% or more.

First-Time vs. Subsequent Use

Your fee percentage increases if you’re using the VA loan benefit for the second time or more, underscoring the importance of considering the timing and frequency of utilizing this benefit. First-time users enjoy lower fees, incentivizing the initial use of the VA loan offering.

Down Payment Impact

Making a down payment reduces the VA funding fee. If you put down less than 5%, your fee falls within one range, but increasing your down payment to 5% or more, but less than 10%, reduces the fee slightly. A down payment of 10% or more significantly cuts the fee, demonstrating the financial advantage of saving for a higher down payment.

Calculating Your Specific Fee

To calculate your fee, you need to multiply the loan amount by the applicable fee percentage. For example, if you’re a first-time user, a veteran, and making no down payment on a $200,000 loan, you’d multiply $200,000 by the corresponding fee percentage (let’s say 2.3% for this example). Your VA funding fee would be $4,600. Remember, this fee can be financed along with your loan, allowing you to include it in your mortgage rather than paying it out of pocket at closing.

By understanding these factors, you can accurately estimate your VA funding fee and make informed decisions about your home purchase or refinance.

Exemptions and Reductions

Exploring exemptions and reductions to the VA funding fee plays a crucial role in your financial planning for a VA home loan. Certain veterans and service members may not need to pay this fee at all, while others might qualify for reduced rates.

Who Qualifies for Exemptions?

  • Service-Connected Disabilities: If you’re receiving compensation for a service-connected disability, you’re exempt from the VA funding fee. This relief extends to those entitled to receive disability benefits but are on active duty or being discharged for a disability incurred in training.
  • Surviving Spouses: Spouses of veterans who died in service or from a service-connected disability, and who are using the VA home loan benefit, do not pay the funding fee.
  • Purple Heart Recipients: Active duty service members who have been awarded the Purple Heart are exempt from the VA funding fee as well.

Reductions Through Down Payments

While exemptions cater to specific eligibility criteria, making a down payment can lead to reductions in the VA funding fee for those not exempt:

  • 5% or More: By putting down 5% or more of the home’s purchase price, both first-time and subsequent users will see a reduced funding fee. For first-time users, the fee lowers significantly, fostering easier access to homeownership.
  • 10% or More: A down payment of 10% or more further lowers the funding fee, marking the most substantial reduction rate. This option is beneficial for subsequent users, providing an avenue to minimize loan costs.

Understanding these exemptions and reductions enables you to navigate the VA home loan process more effectively, potentially saving thousands of dollars. Whether you qualify for an exemption or plan for a down payment to reduce the fee, it’s essential to incorporate these factors into your financial strategy when considering a VA home loan.

How to Pay the VA Funding Fee

Upon grasping the nuances of the VA funding fee, including how to calculate it and the available exemptions and reductions, you’ll next need to understand the payment methods available for this fee. Ensuring timely and proper payment is crucial for the seamless processing of your VA home loan.

Include in Your Loan Amount

Most commonly, veterans and active military members choose to finance the VA funding fee along with their home loan. This approach doesn’t require upfront cash, seamlessly integrating the fee into the monthly mortgage payments. However, it’s essential to remember that financing the fee increases the overall loan balance and, subsequently, the monthly payments and the total interest paid over the life of the loan.

Pay Upfront at Closing

Alternatively, you can opt to pay the funding fee upfront at closing. This method requires having the cash on hand but saves money over the loan term by lowering the borrowed amount and reducing the total interest cost. For those who are able, paying upfront is financially advantageous.

Split Payment Method

A less common but viable option involves splitting the fee payment between financing and paying a portion upfront. This hybrid approach allows for a balance between upfront affordability and long-term cost savings. You can decide the split based on your current financial situation and long-term budgeting plans.

You have three primary methods to pay the VA funding fee: financing it with your loan, paying it in full upfront at closing, or a combination of both. Each method has its benefits and drawbacks, depending on your financial position and long-term homeownership goals. Your loan officer can provide personalized advice, helping you to select the best payment strategy that aligns with your financial circumstances.


Navigating the VA funding fee is a crucial step in your journey toward homeownership. With the insights provided, you’re now equipped to make informed decisions that align with your financial situation and homeownership aspirations. Whether you’re financing the fee with your loan, paying upfront, or opting for a split payment, understanding the nuances of each method can significantly impact your overall loan balance and monthly payments. Remember, the right strategy is out there for you—it’s just a matter of assessing your options and choosing the path that best suits your needs. Armed with this knowledge, you’re one step closer to securing your dream home while maximizing the benefits available to you as a veteran or active military member.


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