The VA loan funding fee is a one-time cost for most VA loans, helping to sustain the program by offsetting costs without monthly mortgage insurance, unlike conventional loans often requiring PMI. This fee, based on down payment and usage, can be paid upfront or rolled into the loan. While it adds to the initial cost, VA loan costs vs. conventional loan fees often favor VA loans long-term, especially with lower down payments, due to the absence of ongoing PMI. Certain veterans are exempt from the funding fee.
What Is The VA Loan Funding Fee?
The VA loan funding fee is a one-time payment the VA requires on every VA loan. It helps keep the whole benefit alive for future veterans by offsetting some of the cost to the government.
It’s not some extra pocket-lining for lenders. It goes back to the system that keeps VA loans going strong and no, it’s not optional unless you qualify to waive it — which I’ll talk about soon. Stick with me.
And here’s what’s wild: you can choose to pay the fee upfront or roll it into your loan. Which means some people don’t even realize they’re financing it, with interest, over 30 years.
VA Loan Funding Fee Breakdown (2024 Rates)
Your funding fee depends on two things:
- Your down payment (if any)
- If this is your first VA loan or a repeat use
Here’s a quick look at how it shakes out:
| Down Payment | First-Time Use | Subsequent Use |
|---|---|---|
| 0% | 2.15% | 3.3% |
| 5% or more | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
If you’re buying a $300,000 home with no down payment and it’s your first time using a VA loan? That’s a $6,450 fee added to your loan. Ouch.
Keyword recap: how VA loan funding fees work — the fee scales based on your down payment and usage history.
Why Does the VA Charge This?
This part gets overlooked. The VA doesn’t require monthly mortgage insurance like FHA or conventional loans with less than 20% down. That’s HUGE savings, monthly. So while the funding fee feels like a surprise slap in the face, it’s actually offsetting that ongoing cost. There’s no PMI on a VA loan — ever. You pay the fee upfront so you’re not stuck with hundreds a month for years. Simple trade-off: upfront cost to avoid long-term expenses.
Who’s Exempt From the VA Funding Fee?
Now here’s where it gets real juicy. You don’t have to pay the VA loan funding fee if:
- You receive VA disability compensation
- You’re eligible for compensation based on a pre-discharge exam
- You’re a surviving spouse of a veteran who died in service or from service-connected causes
I’ve seen folks save $9K+ just because they didn’t realize their disability rating exempted them. If you haven’t checked your eligibility lately, do it. This one thing can change your homebuying game. You might also like: VA Loan vs FHA Loan: Which Is Better?
Can You Roll the VA Loan Funding Fee into the Loan?
Yes. It’s common. Instead of paying it out-of-pocket at closing, you just roll it into your mortgage. Downside? It increases your loan balance and you pay interest on it — for 15 or 30 years. So that $6,000 fee might turn into $9,500 with interest over time. Not a deal-killer, but you want to know what you’re signing up for. If you’ve got the cash, it’s better to pay it upfront. If not, do what gets you in the door. It’s still one of the lowest-cost mortgage options in the country.
How VA Loan Costs Compare to Conventional Loan Fees
Let’s be real. The VA home loan funding fee is still usually cheaper than what you’d get hit with on a conventional loan if you’re putting less than 20% down.
Here’s some truth:
- Conventional loans: PMI (Private Mortgage Insurance) kicks in under 20% down — easily $150–$300/month.
- VA loans: You cough up a one-time fee, but there’s no PMI dragging you every single month.
Even when you roll the funding fee into your loan, in most situations, VA wins on long-term cost. Easily.
Real example:
Two buyers get a $300,000 loan.
- VA buyer pays $6,450 once (can be financed)
- Conventional buyer puts 5% down and pays ~$200/month in PMI — over 5 years, that’s $12,000
That funding fee isn’t looking so bad now, is it? Want more home loan tips? Check out The Smart Way to Compare Mortgage Loans.
Ways to Reduce the VA Loan Funding Fee
Even if you’re not fully exempt, you can lower the funding fee with a little strategy:
- Put down at least 5% — drops the rate by 0.65%
- Use your VA loan benefit smart — first-time use always gives you a better rate
- Use refunds if your disability rating comes in after closing — you can get the fee refunded
Quick tip: If you’re buying now but expecting your VA disability decision soon, apply with that in mind. Even if the ruling comes after, there’s a chance you’ll get the fee kicked back. You’ve got options. Line them up right, and you can save thousands.
FAQs About How VA Loan Funding Fees Work
Q: Do all veterans pay the funding fee?
A: Nope. If you receive VA disability benefits or meet other conditions, you may be exempt.
Q: Can the seller pay the VA funding fee?
A: Technically, yes, but it’s rare. It has to be negotiated into the deal. Most times, buyers cover it.
Q: Is the VA funding fee tax deductible?
A: It used to be. These days, you should check with your tax pro. It might be rolled into other deductions related to mortgage points or loan costs.
Q: Can you get a refund on the VA funding fee?
A: If you paid the fee and get approved for disability benefits afterward, you may get a refund. Talk to your lender and the VA.
Q: Is it ever worth going conventional to avoid the VA funding fee?
A: Sometimes. If you’re putting 20% down and your credit score is high, a conventional loan with no PMI and no funding fee could work better.