What is the VA Loan Funding Fee?

I’m going to explain the VA loan funding fee, and at the end, I’ll share how this fee can ultimately be waived. My name is Evan Kaufman, your VA loan originator.

What is the VA Loan Funding Fee?

The VA loan funding fee is a fee charged directly by the Department of Veterans Affairs (VA) to VA homebuyers. This fee helps support the VA loan program as a whole. It is not charged by the lender; instead, it comes directly from the VA at the time of closing.

There are three ways to pay the VA funding fee:

1. Paid by the buyer at closing.
2. Paid by the seller at closing.
3. Rolled into the loan amount, which is the most common option.

The funding fee is the one closing cost that can be rolled into a VA loan. When people hear, “closing costs can be rolled into a VA loan,” they are usually referring to this fee.

How Much is the VA Funding Fee?

The amount of the VA funding fee depends on several factors, including down payment and whether it’s your first use of the VA loan benefit or a subsequent use:

• 0% Down Payment:

  • First-time use: 2.15% of the loan amount.
  • Subsequent use: 3.3% of the loan amount.

• 5% Down Payment:

  • Funding fee drops to 1.5%.

• 10% Down Payment:

  • Funding fee drops to 1.25%.

Putting money down on a VA loan can significantly reduce the funding fee, which is why we often recommend this option to our clients.

VA Funding Fee for Refinances

If you’re using a VA loan for refinancing, the funding fee structure changes slightly:

• VA IRRRL (Interest Rate Reduction Refinance Loan): 0.5% of the loan value.
• VA Loan Assumption: 0.5% funding fee.
• Cash-Out Refinance: The funding fees for a purchase loan apply.

How Can the VA Funding Fee Be Waived?

The VA funding fee can be waived under certain circumstances:

1. VA disability compensation: If you have a disability rating of 10% or greater.
2. Purple Heart recipients: Active-duty service members with a Purple Heart.
3. Surviving spouses: If you inherit VA loan benefits due to the death of your spouse.

According to VA estimates, nearly half of veterans may qualify for a waived funding fee due to VA disability compensation.

Important Notes

For active-duty service members, the funding fee waiver is more challenging to obtain unless they are Purple Heart recipients. However, for veterans, disability compensation is the most common way to have the fee waived.

Why Consider Putting Money Down?

Reducing the funding fee is one reason to consider making a down payment on a VA loan. More importantly, it helps you build equity in your home faster. At our firm, we focus on helping clients achieve long-term financial independence, and putting 5% or 10% down can be a big step toward that goal.

Checking Your VA Loan Eligibility

To determine your VA funding fee and eligibility, we’ll review your Certificate of Eligibility (COE). The funding fee depends on:

• Your down payment amount.
• First-time or subsequent use of your VA loan benefit.
• Your eligibility for a waiver due to disability compensation, Purple Heart status, or surviving spouse benefits.

Final Thoughts

The VA loan funding fee supports a program that has helped countless veterans and active-duty members achieve homeownership. While it can add to your loan costs, there are ways to manage or even eliminate it.

If you have questions about the VA funding fee or need help pulling your COE, reach out to me. My name is Evan Kaufman, your VA loan originator, and I’m here to help. Take care!