Who Pays the VA Funding Fee? A Complete Guide to Exceptions & Payment Options

by | VA Loans | 1 comment

Navigating the world of VA loans can feel like deciphering a new language, especially when it comes to understanding the VA funding fee. This one-time payment is critical in the loan process, yet many are left wondering exactly who it benefits. If you’re eyeing a VA loan for your next home purchase, getting to grips with the funding fee is a step you can’t afford to skip.

The VA funding fee serves a specific purpose, ensuring the loan program remains sustainable for future veterans and service members. But who actually receives this fee, and why does it matter to you? In the following paragraphs, we’ll break down the essentials, making it clearer how this fee fits into the broader picture of your home buying journey. Let’s dive into the specifics of the VA funding fee and shed light on its significance.

Understanding the VA Funding Fee

The VA funding fee plays a pivotal role in the longevity and accessibility of the VA loan program for veterans and military service members. This fee, a percentage of the loan amount, directly contributes to the program’s sustainability, ensuring that future generations of veterans can benefit from it. Understanding who is responsible for this fee and how it’s calculated is crucial for anyone considering a VA loan for their home purchase.

Primarily, the fee is paid by veterans, active service members, and in some cases, reservists and National Guard members who are seeking to obtain a VA loan. The exact percentage of the fee varies based on several factors, including the type of loan, the amount of the down payment, and whether the borrower has used their VA loan benefit before.

  • First-time users of VA loans without a down payment typically pay a funding fee of 2.3% of the loan amount.
  • For subsequent uses, this fee increases to 3.6% to further support the program’s funding.
  • Those offering a down payment of 5% or more may see reduced fees, incentivizing larger initial investments in the property. Specifically, down payments of 5% but less than 10% reduce the fee to 1.65% for first-time users and 1.65% for subsequent uses. Down payments of 10% or more decrease the fee to 1.4% regardless of the usage frequency.

Certain individuals, however, are exempt from the VA funding fee. This includes veterans receiving VA compensation for service-connected disabilities, those who would be receiving compensation if they weren’t receiving retirement pay, and surviving spouses of veterans who died in service or from service-connected disabilities.

By integrating the VA funding fee into your financial planning for a home purchase, you align with the program’s purpose to aid those who’ve served the country, while also ensuring its future viability for upcoming veterans.

Who Pays the VA Funding Fee?

When applying for a VA loan, understanding who is responsible for the VA funding fee is critical. This fee, designed to sustain the VA loan program, typically falls on veterans, active service members, reservists, and National Guard members. The exact percentage you pay depends on several factors, including the type of loan and the size of your down payment. Generally, first-time VA loan users face a 2.3% fee unless making a down payment of at least 5%, which reduces the fee. For subsequent uses, the fee increases to 3.6% but can be lowered with larger down payments.

Exceptions to paying the VA funding fee exist, providing relief to certain applicants. If you’re a veteran with a service-connected disability, you’re exempt, ensuring that those who have sacrificed the most aren’t burdened further. Surviving spouses of veterans who died in service or from service-connected disabilities also qualify for this exemption, reflecting the VA’s support for families of fallen service members.

It’s important to note, the fee can be financed along with your loan amount, allowing you to spread the cost over the loan’s term. This option makes the VA loan even more accessible by eliminating the need for upfront payment, thereby reducing the financial barrier for eligible service members.

The majority of VA loan applicants are required to pay the VA funding fee to help fund the program for future generations. However, exemptions and financing options are available, making it essential to investigate your specific situation ahead of loan application to accurately integrate these costs into your financial planning. Understanding who pays the VA funding fee ensures you’re prepared, financially and mentally, for this aspect of the home-buying process.

How the VA Funding Fee Is Calculated

Calculating the VA funding fee involves several factors that directly impact the total cost you, as a borrower, will pay when securing a VA loan. This fee, expressed as a percentage of the loan amount, varies based on the type of loan, your military status, the size of your down payment, and whether you’ve used VA loan benefits before.

  1. Loan Type: The VA funding fee differs for purchases, refinances, and cash-out refinances. For instance, purchase loans for first-time users require a different percentage compared to those who are refinancing.
  2. Military Service: Your service category—whether you’re a veteran, an active duty service member, a reservist, or a National Guard member—also determines the fee percentage. Generally, members of the Reserves or National Guard might pay a slightly higher fee than those who served in the active military.
  3. Down Payment Amount: The size of your down payment significantly affects the VA funding fee. Larger down payments result in lower fees. For instance, a down payment less than 5% of the home’s value entails a higher fee, while down payments of 5% to 10%, and above 10% have incrementally lower fees.
  4. Subsequent Use: If you’ve used a VA loan before, the funding fee increases. First-time VA loan users typically pay a lower fee than those taking out a VA loan for the second time or more.
  5. Exceptions: Certain individuals, such as veterans with service-connected disabilities and the surviving spouses of veterans who died in service, are exempt from the VA funding fee, impacting how much is calculated for eligible parties.

The VA funding fee can also be financed along with your loan amount, spreading its cost over the term of your loan for more manageable payments. Understanding these factors ensures that you are better prepared for the financial aspects of buying a home through the VA loan program, reinforcing the program’s aim to make homeownership accessible for service members, veterans, and their families.

Where Does the VA Funding Fee Go?

After understanding the significance and calculation of the VA funding fee, you might wonder about the destination of this fee. Essentially, the VA funding fee serves a vital role in financing the Department of Veterans Affairs’ loan guarantee programs. Here’s a breakdown of how this fee sustains and supports the program:

  1. Loan Guarantees: The main purpose of the VA funding fee is to back the VA loan guarantee. This means, if a borrower defaults on a loan, the VA can cover a portion of the losses. The fee helps reduce the cost to taxpayers by making the program self-sustaining.
  2. Program Administration: Running the VA loan program isn’t free. A portion of the VA funding fee goes towards the administrative costs associated with managing the VA loan program. This includes costs related to processing applications, underwriting loans, and providing support to lenders and borrowers.
  3. Educational Resources: The VA also allocates funds from the VA funding fee towards educational resources for veterans and service members. These resources help potential borrowers understand their benefits, the home buying process, and how to apply for and manage a VA loan.
  4. Future Benefits Funding: By collecting the VA funding fee, the Department of Veterans Affairs ensures the longevity and stability of the loan program for future generations of veterans and service members. The fee helps maintain the VA home loan benefits without relying on additional funding from Congress.

It’s clear that the VA funding fee isn’t just an additional cost; it’s a critical component for the sustainability of the VA loan program. This fee allows the program to offer competitive loan options to veterans and service members, helping them achieve homeownership while minimizing the burden on taxpayers. Understanding where the VA funding fee goes highlights the importance of contributing to a system designed to honor and assist those who’ve served the country.

How to Pay the VA Funding Fee

Paying the VA funding fee is a straightforward process, typically incorporating the fee into your overall loan amount. This approach allows veterans and service members to finance the fee over the life of the loan, rather than requiring upfront cash payment. Below, find the key methods and considerations for handling the VA funding fee.

Financed along with Your Loan

  • Adding to Loan Balance: Most borrowers opt to add the VA funding fee to their loan balance. This method spreads the fee’s cost over the term of the loan, making it manageable within monthly mortgage payments.
  • Impact on Loan-to-Value Ratio: Financing the fee increases your loan amount but doesn’t require immediate out-of-pocket expenditure. Be mindful that this could slightly elevate your loan-to-value ratio.

Paying Upfront

  • Immediate Payment: If you prefer not to finance the fee, you can choose to pay it in full at closing. This option may appeal if you wish to lower your borrowed amount and monthly payments.
  • Reduction in Overall Loan Cost: Paying the fee upfront saves money over the long run by reducing the amount of interest paid on the financed fee.

Special Considerations

  • Rolling the Fee into Refinancing Loans: For those refinancing a VA loan, the funding fee can also be financed. Whether undertaking a Cash-Out Refinance or a Streamline (IRRRL), the fee can be added to your new loan amount.
  • Lender Policies: Individual lenders might have specific policies or recommendations regarding the payment of the VA funding fee. Consult with your loan officer to understand your options.
  • Disability and Purple Heart Recipients: Importantly, certain individuals, such as veterans receiving disability compensation or Purple Heart recipients, are exempt from the VA funding fee. Check your eligibility for exemption to potentially save thousands of dollars.

Understanding your options for paying the VA funding fee ensures you’re prepared for the financial aspects of securing a VA loan. Whether you finance the fee or pay it upfront, being informed helps you make decisions that best suit your financial situation and homebuying goals.


Navigating the VA funding fee doesn’t have to be a daunting task. Armed with the knowledge of how it’s calculated and who’s exempt, you’re already a step ahead. Whether you choose to finance the fee with your loan or pay it upfront, the key is understanding how each option affects your financial future. Remember, for those who qualify for exemptions, such as disability or being a Purple Heart recipient, exploring these can lead to significant savings. Making an informed decision about the VA funding fee will ensure you’re leveraging the benefits of your VA loan in the most effective way possible.


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