The VA funding fee is a one-time loan fee paid to the Department of Veterans Affairs (VA). The VA uses the money received through the VA funding fee to help pay for a variety of veteran-centric programs, including the VA home loan program.
The VA funding fee can be rolled into the mortgage or be paid upfront. Borrowers usually choose to roll the funding fee amount into their monthly mortgage payments, which will reduce the amount of money needed at closing. Be sure to talk with your VA loan team if you wish to roll the VA funding fee into your mortgage.
Not necessarily. The VA funding fee can be paid in multiple ways. Borrowers have the choice to pay the fee upfront or finance it into monthly mortgage payments. If you do a cash-out refinance, however, you can pay the VA funding fee using cash from your home’s equity.
The VA funding fee is calculated as a percentage of the total loan amount. Several factors, such as down payment size, disability status, and if it’s your first time using a VA loan or not, play into how your VA funding fee is calculated. The 2.3% for first-time use and 3.6% for subsequent use stays the same for the majority of borrowers, but the total dollar amount will depend on the size of your loan.
Veterans with a disability rating of higher than 10%, Purple Heart recipients, and surviving spouses of veterans who died in the line of duty are exempt from paying the VA funding fee. About one-third of all VA loan borrowers are exempt, so ask a VA loan lender if you qualify for an exemption.
As of January 1, 2020, the VA funding fee rate is 2.30% for first-time VA loan borrowers with no down payment. The funding fee increases to 3.60% for those borrowing a second VA loan. The funding fee rate is only applied to the amount financed in the VA loan, so no fee is applied to a borrower’s down payment.
Borrowers can decrease their funding fee rate by putting at least 5% down on a VA home loan, and about one-third of all borrowers are exempt from paying the funding fee altogether.