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

Mark Henricks
Mark Henricks
The Mortgage Reports Contributor
October 23, 2020 - 7 min read

What is the VA funding fee?

The VA funding fee is an administrative fee added to most VA mortgages.

The funding fee supports the VA loan guaranty program so that these mortgages can remain low-cost and available to future veterans.

As a result, VA home loans offer some of the best benefits in today’s market.

Qualifying veterans get low interest rates, zero down payment, and never have to pay mortgage insurance.

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

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How much is the VA funding fee?

VA funding fees are based on a percentage of the loan amount, but not all loans require the same percentage.

Funding fees for home buying range from 1.4 percent to 3.6 percent of the loan amount. Funding fees for a VA refinance range from 0.5 percent to 3.6 percent.

Several factors determine the size of the VA funding fee, including:

  • Loan purpose (refinance, cash-out refinance, home purchase, etc.)
  • Type of home
  • Down payment amount
  • Whether or not you’ve used a VA loan before

Some veterans are exempt from paying a funding fee for any VA home loan.

VA funding fee exemption

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

The full list of VA funding fee exemptions is as follows:

  • A veteran receiving VA compensation for a service-related disability
  • A veteran entitled to receive VA compensation for a service-connected disability, but who receives retirement pay or active duty pay
  • A surviving spouse of a veteran who died in active service or from a service-connected disability
  • An active-duty service member 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 the Department of Veterans Affairs to prove the veteran is eligible for a VA loan.

VA funding fees in 2022

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 one-time fee applies to the most popular type of VA loan benefit: a mortgage loan with no down payment.

The full range of funding fee amounts are as follows.

VA home purchase loans:

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%

VA 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%

VA refinance funding fees

Service members and veterans pay 2.3 percent the first time they use the VA loan program for a cash-out refinance, and 3.6 percent for subsequent uses.

Reserves and National Guard veterans pay the same.

These higher fees do not apply for a VA streamline refinance (a.k.a. ‘IRRRL’).

This a type of loan in which the veteran replaces their existing VA loan with a new VA loan that has a lower interest rate.

For all VA IRRRL loans, the funding fee is just 0.5 percent of the new loan amount, no matter how many times it’s used.

Funding fees for manufactured homes and construction loans

Loans for manufactured homes require a funding fee of 1 percent. A veteran who assumes a VA mortgage will pay just 0.5 percent.

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

In this case, the funding fee percentage is based on the loan amount and not the purchase price of the home.

How to pay the VA funding fee

The VA funding fee is due when the loan closes. 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 the funding fee in cash on closing day. However, most veterans choose to include the fee in their loan amount.

Rolling it into the loan eliminates the need for additional cash at closing. But it also means you pay interest on the fee amount over time.

Or, the home’s seller could 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 4 percent of the total loan amount in most cases.

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.

When will funding fees change?

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

The newer 2020 funding fees will be in effect through January 1, 2022, then will be reviewed again.

This is good news for military home buyers who are still a couple years away from becoming a homeowner or refinancing an existing 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 home loans with attractive mortgage rates and terms.

Funding fees paid by VA borrowers help keep this entitlement 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.

How to access VA loan benefits

The Department of Veterans Affairs administers the VA home loan program. But the VA itself does not lend money.

Instead, the VA authorizes private lenders to sell VA loans. It also backs part of the loan, helping reduce risk to these lenders.

With backing from the VA, mortgage lenders can offer more attractive mortgage rates, eliminate down payment requirements, and consider borrowers with lower credit scores, without having to worry about what will happen if a loan defaults.

To use your VA loan entitlement, you’ll need a Certificate of Eligibility (COE) proving you’re eligible for the VA home loan benefit.

VA lenders can get your COE for you within minutes. You can also get a COE yourself through the VA’s online portal.

Do I qualify for a VA loan?

A Certificate of Eligibility doesn’t guarantee you’ll get a VA loan.

You’ll still have to qualify with a VA lender based on your credit score, credit report, debt-to-income ratio, and income.

The VA itself doesn’t set a minimum credit score to borrow, but many VA lenders require a FICO score of 620 or higher.

Some lenders may extend credit to borrowers with lower credit scores, but VA lenders don’t accept subprime credit.

The VA no longer sets maximum loan limits, but your VA lender may. So if you’re shopping for a higher-priced home, be sure to ask your lender about this upfront.

What types of VA loans are available?

Through the VA mortgage program, veterans, active duty military members, and qualifying surviving spouses have access to a range of loan products.

These include:

  • VA home purchase loans
  • VA cash-out refinancing
  • VA streamline refinancing (‘VA-to-VA loan’ or ‘IRRRL’)
  • VA construction loans
  • VA manufactured home loans
  • VA loan assumption

Regardless of one’s status as a homeowner or home buyer, the VA mortgage program is likely to offer an attractive option for those who qualify.

What are today’s VA loan rates?

Current VA rates are lower than those of conventional and FHA loans.

Requiring no mortgage insurance is another important advantage to VA loans.

Check today’s low VA rates and see if you are eligible.

Since the VA allows lenders to set their own rates and terms, home buyers should compare quotes from at least three different VA-authorized lenders.

When comparing rates, make sure each quote reflects the same loan terms, discount points, and loan amount.

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