What is the VA funding fee
The funding fee is how the VA loan program funds itself instead of billing taxpayers. In exchange for this one-time charge, VA borrowers skip the monthly mortgage insurance that FHA and low-down conventional loans carry for years. On a typical loan, monthly insurance would cost more within about three years than the entire funding fee, which is why the trade is heavily in the borrower's favor.
Current funding fee rates
Purchase and construction loans
| Down payment | First use | After first use |
|---|---|---|
| Less than 5% | 2.15% | 3.30% |
| 5% to 9.99% | 1.50% | 1.50% |
| 10% or more | 1.25% | 1.25% |
Refinances and other uses
| Loan type | First use | After first use |
|---|---|---|
| Cash-out refinance | 2.15% | 3.30% |
| Streamline refinance (IRRRL) | 0.50% | 0.50% |
| Loan assumption | 0.50% | 0.50% |
These rates took effect in April 2023 and remain in effect. The "after first use" premium only applies when you put down less than 5%, which is one more reason the fee should never scare anyone away from reusing the benefit.
Who pays no funding fee at all
Roughly one in three VA borrowers is exempt and pays $0. You are exempt if any one of these is true:
- You receive VA disability compensation at any rating of 10% or higher
- You are eligible for disability compensation but receive military retirement pay or active duty pay instead
- You are a surviving spouse receiving Dependency and Indemnity Compensation
- You are an active duty service member with a Purple Heart, closing while on active duty
- You have a pending pre-discharge disability claim that is later approved (see the refund rule below)
The refund rule almost nobody knows
If you close your loan while a disability claim is pending and the VA later grants a rating effective before your closing date, you are entitled to a refund of the funding fee you paid. Veterans have recovered thousands of dollars this way, and lenders do not always volunteer it. If this is you, contact your lender or your VA Regional Loan Center and ask for a funding fee refund review.
A worked example
First-time buyer, $400,000 home, nothing down, no exemption. The fee is 2.15% of $400,000, which is $8,600. Financed into the loan at 5.99% for 30 years, it adds about $52 to the monthly payment and about $18,500 in total cost over the full term. The same buyer with a 10% disability rating pays $0. The same buyer putting 5% down pays 1.50% instead, cutting the fee to $5,700.
How to lower the fee if you are not exempt
- Put 5% down if you can. The single biggest lever: first use drops from 2.15% to 1.50%, and a repeat use drops from 3.30% to 1.50%. On a $400,000 repeat purchase that saves $6,840.
- Ask the seller to pay it. The funding fee is a closing cost the seller is allowed to cover in negotiations.
- File your disability claim before you buy. If you have a service-connected condition and have not filed, a granted rating of even 10% makes every future VA loan fee-free for life.
- Do not roll it in blindly. If you have the cash, paying the fee at closing avoids paying interest on it for 30 years.
Frequently asked questions
Is the VA funding fee paid every year?
No. It is a one-time charge at closing. It is not an annual fee and it is not the same as mortgage insurance, which VA loans never carry.
Can the funding fee be included in the loan?
Yes, and most borrowers do exactly that. It adds a small amount to the monthly payment instead of requiring cash at closing.
Does a 10% disability rating really waive the whole fee?
Yes. Any compensable rating of 10% or higher waives the entire fee, on every VA loan you ever use, purchase or refinance.
I got my disability rating after closing. Can I get my fee back?
If the rating's effective date is on or before your closing date, yes. Ask your lender or Regional Loan Center for a funding fee refund. This is a real, established VA rule.
Is the funding fee tax deductible?
It has been treated as deductible mortgage insurance in some tax years and not others, and Congress changes this. Ask a tax professional about the current year before filing.
Do surviving spouses pay the funding fee?
Surviving spouses receiving Dependency and Indemnity Compensation are fully exempt. Other surviving spouse situations vary, so have the lender pull the Certificate of Eligibility, which states the exemption.
Why is the fee higher the second time I use my benefit?
Only when you put down less than 5%. The VA charges 3.30% on subsequent zero-down uses to keep the self-funding program balanced. Put 5% down and repeat use costs the same 1.50% as a first use.
Where does my funding fee money go?
Into the VA guaranty fund that backs every VA loan. It is what lets lenders offer zero down with no mortgage insurance to the next veteran, the same way someone else's fee backed your loan.