The VA Funding Fee, Explained: What You'll Actually Pay — and Who Pays Nothing

The VA loan has no down payment and no monthly mortgage insurance — so where does the "cost" come in? It's a single, one-time charge called the VA funding fee. Once you understand it, it stops being scary. And for a lot of the veterans I work with in Southwest Missouri, it turns out to be $0. Let's break it down with the actual current numbers.

What the funding fee is (and why it exists)

The VA funding fee is a one-time payment on a VA-backed home loan. The VA describes it as a fee that "helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn't require down payments or monthly mortgage insurance."¹ In other words, it's the trade-off that keeps the whole zero-down, no-PMI benefit running.

The current rates (effective April 7, 2023)

How much you pay depends on your loan type, whether it's your first time using the benefit, and your down payment. Here are the current rates for purchase and construction loans, straight from the VA:¹

A couple of other common ones worth knowing: a VA Interest Rate Reduction Refinance Loan (IRRRL, or "streamline" refinance) has a funding fee of just 0.5%, and a cash-out refinance is 2.15% first use / 3.3% after.¹

Who pays $0 — the exemptions

This is the part I make sure every client checks first. You won't pay a funding fee if any of these apply to you:¹

• You're receiving VA compensation for a service-connected disability;
• You're eligible to receive that compensation but are getting retirement or active-duty pay instead;
• You're a surviving spouse receiving Dependency and Indemnity Compensation (DIC);
• You're a service member with a proposed or memorandum rating before closing confirming eligibility from a pre-discharge claim; or
• You're an active-duty service member who provides evidence of a Purple Heart on or before your closing date.

The VA also notes that if you're later awarded service-connected compensation with an effective date before your loan closing, you may be eligible for a refund of the fee you paid.¹

How you pay it

You have two options: pay the full fee in cash at closing, or roll it into your loan and pay it off over time (financing it).¹ Most zero-down buyers finance it so it doesn't add to their out-of-pocket costs. Just remember the VA calculates the fee as a percentage of your loan amount, not the purchase price.¹

A worked example

The VA's own example: a first-time buyer purchasing a $200,000 home with a $10,000 (5%) down payment finances $190,000. At the 5%-down first-use rate of 1.5%, the funding fee is $2,850 — 1.5% of the $190,000 loan, not the purchase price.¹

Now a Springfield-area example with no down payment on a $250,000 home:

One more thing about closing costs

On a purchase loan, the funding fee is the only cost you can finance into the loan — other closing costs are paid at closing.¹ The good news: the VA lets sellers cover some or all of your closing costs, and allows seller concessions up to 4% of the home's reasonable value.¹ Negotiating that is a big part of my job on the veteran's side of the table.