What is VA funding fee?
VA funding fee is a one time fee that is applied to every VA loan whether it is for a purchase or a refinance. This fee is collected by lender and goes directly to the Department of Veterans Affairs. This funding fee is what makes homeownership a reality for many military families. It helps cover losses and keep the loan guaranty program running. It also lowers the burden on the taxpayers while making zero or low down payment possible for qualified borrowers.
Do I have to pay VA funding fee?
If you use VA loan to buy, repair, improve a property or refinance an existing mortgage, chances are you will need to pay the VA funding fee. The fee is paid at closing or it can be financed into the loan. You can also negotiate with the seller and ask them to pay it on your behalf. If you meet certain requirements, the funding fee can be waived. The VA exempts specific borrowers from paying the funding fee on both purchase and refinance loans. You don’t have to pay the funding fee if you are:
- Receiving VA compensation for a service-connected disability
- Eligible to receive VA compensation for a service-connected disability, but receiving retirement or active-duty pay instead
- The surviving spouse of a Veteran who died in service or from a service-connected disability, or who was totally disabled, and receiving Dependency and Indemnity Compensation (DIC)
- A service member with a proposed or memorandum rating, before the loan closing date, saying you’re eligible to get compensation because of a pre-discharge claim
- A service member on active duty who before or on the loan closing date provides evidence of having received the Purple Heart
VA funding fee rate charts
VA funding fee is calculated as a percentage of the loan and how much you pay for VA funding fee depends on a number of factors. The type of loan you apply for, amount of down payment and how many times you have used VA loan all determine the rate of funding fee. The VA funding fee rate changes from time to time but as of September 2021, the rates are as listed in the table below:
| 2021 VA Funding Fee Rates (for home purchase and construction loans) | ||
| If down payment is… | VA funding fee will be… | |
| First use | Less than 5% | 2.3% |
| 5% or more | 1.65% | |
| 10% or more | 1.4% | |
| After first use | Less than 5% | 3.6% |
| 5% or more | 1.65% | |
| 10% or more | 1.4% | |
As seen in the table above, the funding fee can range from as low as 1.4% to as high as 3.6%. And the down payment has a big role in the rate. It would be best if you can put down 10% or more to lower the funding fee.
Besides purchase, refinance loan is also subjected to funding fee. The table below lists the current funding fee rates for cash out refinance. You should only do a cash out refinance if you absolutely need to as the funding fee can come out to a pretty significant number.
| 2021 VA Funding Fee Rates (for cash out refinance) | |
| First use | After first use |
| 2.3% | 3.6% |
Other loan closing costs
Besides VA funding fees, there are other closing costs to consider. These could be taxes & title insurance, loan origination fee, VA appraisal fee, administrative fees, discount points and other fees imposed by lender. Some of these you might be able to shop for and some can be negotiated and paid for by seller. You should check with your lender on which fees you could shop for to keep the costs down.
Take away
VA funding fee is an administrative fee paid to the Department of Veterans Affairs expressed as a percentage of the loan. It is only applicable to VA loan but if you meet certain requirements, it can be waived. The VA funding rate can change from time to time. Visit va.gov to check for the most current rate. Everyone’s financial situation is different but if you plan on using VA loan, you should consider put down at least 5% to reduce the funding fee. Unless you have the need to do a cash out refi, don’t do it as the funding fee can amount to thousands of dollars.