The VA Funding Fee, Demystified
How the VA funding fee changes by transaction, benefit use, and down payment—and how to compare paying it with financing it.
Quick answer
The VA funding fee is a one-time charge, not monthly mortgage insurance. Its percentage depends on the transaction, prior use, and sometimes down payment; VA determines exemptions and refunds.
What the funding fee is—and is not
The fee helps support the VA home loan program and may apply to each new VA transaction unless VA confirms an exemption. Paying it on an earlier loan does not create a lifetime exemption. VA loans do not carry monthly private mortgage insurance; that differs from conventional PMI and FHA mortgage insurance.
Do not compare programs on this fee alone. Review the interest rate, APR, points, lender credits, third-party costs, insurance, cash to close, and projected payments on each actual Loan Estimate.
Use the current table for the transaction
For a purchase, calculate the fee from the base loan after down payment—not the purchase price. VA separates purchase and construction, cash-out refinance, IRRRL, manufactured-home, and assumption transactions.
| Transaction | First use | Subsequent use |
|---|---|---|
| Purchase: less than 5% down | 2.15% | 3.30% |
| Purchase: 5% to less than 10% down | 1.50% | 1.50% |
| Purchase: 10% or more down | 1.25% | 1.25% |
| Cash-out refinance | 2.15% | 3.30% |
| IRRRL | 0.50% | 0.50% |
| Loan assumption | 0.50% | 0.50% |
Calculate the base loan before the fee
Hypothetical purchase: a $300,000 price minus a $15,000 down payment produces a $285,000 base loan. At the 5% down tier, 1.50% of $285,000 is $4,275. Financing it produces $289,275 of principal; the down payment is not subtracted twice.
Paying the fee uses more cash now. Financing preserves cash but adds principal and interest while that amount remains outstanding. Compare both versions on written disclosures; this arithmetic is not an offer.
Confirm an exemption or refund with VA
VA lists specific exemption categories, including certain compensation recipients, borrowers entitled to compensation but receiving retirement or active-duty pay instead, surviving spouses receiving DIC, certain pre-discharge ratings, and active-duty Purple Heart recipients who provide evidence on or before closing. A rating or pending claim alone is not a universal test.
Check the COE and lender file before closing. If VA later awards qualifying compensation with an effective date before closing, a refund may be available; VA decides the status and documentation.
Separate financing from seller payments
On a VA purchase, the funding fee may be added to the loan. Other closing costs and prepaid items are not automatically financeable; they must be handled through permitted funds, credits, or seller payments and remain subject to value and loan terms.
VA's 4% limit applies to seller concessions measured against reasonable value. Ordinary seller-paid closing costs are classified separately under VA guidance, so 4% is not a cap on every seller-paid cost. Ask the lender and settlement provider to classify each proposed credit before finalizing the offer.
- Confirm purpose, prior VA use, down-payment percentage, and base loan.
- Verify COE exemption status and supporting evidence.
- Compare fee-paid and fee-financed principal, cash, and reserves.
- Reconcile the fee and credits on the Loan Estimate and Closing Disclosure.
Sources checked September 25, 2026. Professional review pending for this revision.
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