The VA Funding Fee, Demystified

The VA funding fee is a one-time payment that helps keep the VA loan program running for future generations of veterans. It replaces the ongoing monthly PMI cost that conventional and FHA borrowers pay for years.

For most borrowers, the trade is enormously in your favor: one financed fee vs. hundreds of monthly PMI payments.

The same funding fee schedule applies to Veterans, active-duty service members, and Guard/Reserve members — there is no separate Guard/Reserve rate. First-use purchase or construction loans with less than 5% down: 2.15%. Subsequent-use loans with less than 5% down: 3.3%.

Putting 5% or more down brings the fee to 1.5%; 10% or more brings it to 1.25% (same for first and subsequent use). IRRRL refinance: flat 0.5%. Cash-out refinance: 2.15% first use, 3.3% subsequent use. See the official schedule at https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/.

Veterans receiving VA disability compensation are exempt from the funding fee entirely. Purple Heart recipients (active duty), and surviving spouses of veterans who died in service or from a service-connected disability, are also exempt.

Most borrowers who owe the fee roll it into their loan rather than pay it at closing — the impact on the monthly payment is small, and the benefit of preserving cash is meaningful.