Understanding Who Pays the VA Funding Fee: Options & Impacts

by | VA Loans | 1 comment

Navigating the world of VA loans can seem like a maze, especially when it comes to understanding who’s responsible for the VA funding fee. This fee, essential for the sustainability of the VA loan program, often raises questions and concerns among veterans and active service members alike. Whether you’re buying your first home or refinancing, knowing who pays the VA funding fee is crucial in planning your finances.

The VA funding fee is a one-time payment that helps keep the loan program running for future generations of military members. It varies based on several factors, including the type of loan, the borrower’s military category, whether it’s a first-time or subsequent use, and the down payment amount. Let’s dive into the specifics and demystify who pays the VA funding fee, ensuring you’re well-informed and ready to take the next step in securing your home loan.

Understanding VA Funding Fee

The VA funding fee, a necessary expense for most borrowers utilizing VA loans, directly supports the loan program’s long-term viability. Primarily, the borrower pays this fee; however, there are flexible payment options available. You can choose to pay it upfront at closing or finance it as part of your loan amount, impacting the overall loan balance and the monthly payments.

The amount of the VA funding fee varies and largely depends on several key factors:

  • Type of Loan: Whether you’re purchasing, refinancing, or taking out a VA Cash-Out refinance loan affects the fee percentage.
  • Military Category: Your fee varies based on your service, with different rates for regular military, Reserves, and National Guard members.
  • Down Payment: Making a down payment decreases the funding fee. The more you put down, especially above 5% or 10%, the lower your fee.
  • First-time or Subsequent Use: First-time users typically pay a lower fee compared to those using the VA loan benefit again.

Notably, certain individuals are exempt from paying the VA funding fee. These exemptions apply to veterans receiving VA compensation for service-connected disabilities, surviving spouses of veterans who died in service or from a service-connected disability, and active-duty service members who provide evidence of having received the Purple Heart.

To accurately determine your specific funding fee or to check if you’re eligible for an exemption, consulting the latest VA funding fee chart is advisable. Also, your VA-approved lender can provide precise calculations based on your individual circumstances, enabling you to understand the exact cost involved in your VA loan process. Keeping these cost factors in mind allows for more informed financial planning and decision-making when leveraging the benefits of a VA loan.

Who Pays the VA Funding Fee?

As you navigate the VA loan process, understanding who is responsible for paying the VA funding fee is crucial for effective financial planning. Essentially, the borrower is responsible for this fee, designed to help fund the VA home loan program, ensuring its long-term viability and benefiting future veterans. This fee is a percentage of the loan amount and can vary depending on several factors, including the type of loan, the borrower’s military service, the size of the down payment, and whether the borrower is using a VA loan for the first time or subsequent times.

Borrowers have the option to pay the funding fee upfront at closing or finance it by adding it to the total loan amount, which impacts the loan’s balance and the monthly mortgage payments. Financing the fee means you’ll pay interest on it over the life of the loan, increasing the overall cost.

Exemptions to the VA funding fee do apply for certain individuals. Veterans receiving compensation for service-connected disabilities, surviving spouses of veterans who died in service or from service-connected disabilities, and service members eligible for the Purple Heart are exempt from this fee. If you fall into one of these categories, you won’t need to budget for the VA funding fee when planning your home purchase or refinance.

For those required to pay the fee, it’s important to consult the latest VA funding fee chart or speak with a VA-approved lender. These resources will help you determine your exact fee percentage based on your specific circumstances. Remember, the VA funding fee is a critical component of the loan process, supporting the program’s availability for you and future veterans. Engaging with a knowledgeable lender can help you navigate these details smoothly, ensuring you’re prepared for all aspects of your VA loan.

Calculating the VA Funding Fee

Calculating the VA funding fee involves understanding key variables: the loan type, your military category, the size of your down payment, and whether it’s your first time using a VA loan or a subsequent use. The percentage of the fee varies, impacting the final amount you’re liable for.

For first-time users without a down payment on a purchase loan, the fee is typically 2.3% of the loan amount. If it’s a subsequent use, the fee increases to 3.6%. Making a down payment can significantly reduce the fee. For example, a down payment of 5% but less than 10% lowers the fee to 1.65% for first-time users.

The military category also plays a role. Active-duty service members, veterans, and National Guard or Reserve members have different rates, though these differences are minimal.

  1. Identify Your Loan Type: Determine whether you’re obtaining a purchase loan, streamline refinance (IRRRL), or cash-out refinance.
  2. Know Your Military Category: Are you a veteran, active-duty service member, or a member of the National Guard or Reserve?
  3. Consider Your Down Payment: The amount of your down payment influences the fee percentage.
  4. Evaluate First-Time or Subsequent Use: Subsequent uses of VA loan benefits typically result in higher fees unless it’s an IRRRL.

A VA funding fee chart simplifies this calculation process, offering a quick reference to identify the applicable fee based on these factors. Remember, calculating the exact fee requires precision. You might find it helpful to consult with a VA-approved lender or use an online VA funding fee calculator for a specific computation of your fee.

Keep in mind, adding the funding fee to your loan amount increases the total finance charge over the loan’s life due to accrued interest. Therefore, include this component in your financial planning for a VA loan to ensure an accurate budget. If you qualify for an exemption, verify this status with your lender as it can save you a significant amount.

Comparing VA Loans to Other Loan Types

When exploring mortgage options, understanding how VA loans stack up against other types of loans is crucial. Each loan type presents distinct advantages and qualifications, impacting your choice significantly. VA loans offer unparalleled benefits for eligible borrowers, but knowing when they’re the most advantageous option involves comparing them to conventional and FHA loans.

VA Loans vs. Conventional Loans: Conventional loans, not backed by the government, typically require higher credit scores and larger down payments than VA loans. While VA loans eliminate the need for private mortgage insurance (PMI) for borrowers, regardless of down payment size, conventional loan borrowers must pay PMI unless they put down at least 20% of the home’s purchase price. This difference can translate into significant monthly savings for VA loan users.

VA Loans vs. FHA Loans: Both loan types are government-backed, but they serve different populations and come with various stipulations. FHA loans, accessible to a broader audience, require at least a 3.5% down payment and mandatory mortgage insurance, regardless of the down payment amount. In contrast, VA loans can offer 100% financing with no required mortgage insurance, presenting a substantial benefit for qualified veterans and service members. However, unlike VA loans, FHA borrowers don’t encounter a funding fee that varies by military service or down payment size, but they do face upfront and annual mortgage insurance premiums.

Deciding between these mortgages depends on your unique circumstances, such as military service, financial situation, and long-term homeownership goals. While VA loans offer significant advantages for eligible veterans and active service members, such as no down payment requirements and no PMI, comparing the costs, benefits, and qualifications of each loan type will ensure you make the best financial decision. As you weigh your options, consult with a VA-approved lender to fully understand each loan’s terms, fees, and benefits, ensuring your financing choice aligns with your homeownership objectives and financial planning.

How to Pay the VA Funding Fee

Paying the VA funding fee is a critical step in securing your VA loan, and understanding your options can help streamline the process. Generally, you have two main methods to cover this cost: either pay it in full at closing or finance it over the life of your loan.

  1. Paying Upfront at Closing: Opting to pay the VA funding fee upfront during the loan closing process means covering the entire fee in one lump sum. This approach benefits you by reducing the overall loan amount and, consequently, the interest paid over the loan’s life. If you choose to pay upfront, ensure you factor this into your closing cost calculations to avoid any surprises.
  2. Financing the Funding Fee: If paying the entire fee upfront isn’t feasible, you have the option to roll the fee into your loan amount. This method spreads the cost of the fee across the loan’s term, making it part of your monthly mortgage payments. While this approach eases immediate financial pressure, it increases both your loan amount and the total interest you’ll pay over time.

Regardless of the method chosen, your VA-approved lender will guide you through the payment process, ensuring that it aligns with your financial situation. If you’re exempt from the VA funding fee due to disability, your lender will also manage the exemption process, ensuring you’re not charged.

In the context of VA loans’ benefits, such as no down payment and no PMI, deciding how to pay the VA funding fee becomes a strategic financial decision. Leveraging the insights from a VA-approved lender, you can select the payment method that best suits your long-term homeownership goals. Remember, the choice between paying upfront or financing the fee impacts your loan’s overall cost, influencing your financial future as a homeowner.


Navigating the VA funding fee doesn’t have to be daunting. Whether you choose to pay upfront or finance it over the life of your loan, understanding your options is key to making a decision that best suits your financial situation. Remember, the choice you make affects your loan amount and the interest you’ll pay over time. Consulting with a VA-approved lender can provide personalized advice, ensuring you leverage the benefits of VA loans to your advantage. Armed with this knowledge, you’re well on your way to achieving your homeownership goals with confidence.


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