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What You Should Know About the VA Loan Funding Fee

Joe Wallace

The VA loan funding fee is “a one-time payment that the Veteran, service member, or survivor pays on a VA-backed or VA direct home loan,” according to the VA official site. Changes to VA loan policies in 2023 have altered the structure and amount of the VA loan funding fee, as we will examine below.

• Under the new rules, some borrowers may pay less in VA loan funding fees than in years past.
• The VA loan funding fee was created to offset the taxpayer burden of the VA home loan program.
• A borrower’s Certificate of Eligibility helps the lender determine the VA loan funding fee amount.
• VA loans require no down payments or mortgage insurance premiums, and the funding fee helps reduce the overall cost of the program year to year. The new VA loan funding fee structure introduced in 2023 lowers the funding fee in many cases.

Related: The VA Loan Certificate of Eligibility

How Much is the VA Loan Funding Fee?

There is no one VA loan funding fee. The amount is determined in part by the nature of the loan (purchase or refinance) and whether or not a down payment is made. The VA loan funding fee is typically larger when there is no down payment or there is a down payment of less than 5% of the loan amount.

The fee is typically lower when a 5% or more down payment is made.

The fee is also determined in part by whether or not the transaction is the borrower’s first use of the VA loan benefit. Second-time use and subsequent uses of the VA loan benefit after the first VA loan typically includes a higher VA loan funding fee.

Why? Basically because in the eyes of the VA, borrowers who use the loan a second time are likely able to afford the increase.

Updated VA Loan Funding Fees

The Department of Veterans Affairs updated its VA loan funding fee structure. On or after April 7, 2023, the fee structure is as follows for VA loans closed on or after On or After April 7, 2023, and before November 14, 2031.

In many cases, the fee has decreased from the previous policy. In some cases (see the “Other VA Home Loans” section below), the fee may be unchanged.

VA Purchase or Construction Loans

• First Use with a down payment of less than 5% = 2.15% funding fee
• First Use with a down payment of 5% or more = 1.5% funding fee
• First Use with a down payment of 10% or more = 1.25% funding fee
• Subsequent Use with a down payment of less than 5% =  3.3% funding fee
• Subsequent Use with a down payment of 5% or more = 1.5%
• Subsequent Use with a down payment of 10% or more =  1.25%

VA Cash-Out Refinance

• First Use 2.15%
• Subsequent Use 3.3%

Other VA Home Loans

• Interest Rate Reduction Refinance Loan (IRRRLs) 0.5%
• Manufactured Home Loans 1%
• Loan Assumptions 0.5%
• Native American Direct Loan 1.25%

Some Borrowers are Exempt

Qualifying surviving spouses and those with VA-rated disabilities may be exempt from paying the VA loan funding fee. This exemption is not automatic and must be applied for. Your lender must review your VA Certificate of Eligibility to ensure you are entitled to a VA loan funding fee waiver.

Read more: VA Loan Funding Fee Exemption For Disabled Veterans