The VA funding fee is one of the first costs many borrowers notice when comparing a VA loan with other mortgage options. It can feel confusing at first, especially because VA loans do not require monthly mortgage insurance, yet many borrowers still have to pay this one-time charge.
A simple way to think about it is that the fee is part of the program’s cost structure. If you are using a VA-backed mortgage to buy, build, improve, repair, or refinance a home, the funding fee may apply unless you qualify for a VA loan funding fee exemption.
What the VA Funding Fee Actually Is
The Department of Veterans Affairs describes the VA funding fee as a one-time payment on a VA-backed or VA direct home loan. The agency says the fee helps lower the program’s cost to taxpayers because VA loans generally do not require a down payment or monthly mortgage insurance.
That matters when comparing total loan cost instead of focusing on one number in isolation. A borrower may see no monthly mortgage insurance on a VA loan, yet still need to account for the upfront funding fee when reviewing cash to close and long-term borrowing cost.
Who Usually Pays the Fee
In general, the borrower pays the VA funding fee. The VA says the fee applies to many purchase, construction, improvement, repair, and refinance transactions unless the borrower meets one of the exemption categories.
The amount is not a flat dollar figure. The VA calculates it as a percentage of the total loan amount, and the exact percentage depends on factors such as the loan type, whether it is your first or later use of a VA loan benefit, and, in some cases, your down payment.
Who May Be Exempt
Several borrowers may not have to pay the fee at all. According to the VA, common exemption categories include veterans receiving compensation for a service-connected disability, borrowers who are eligible for that compensation but are receiving retirement or active-duty pay instead, and surviving spouses receiving Dependency and Indemnity Compensation.
The VA also includes some timing-based cases. A service member with a proposed or memorandum rating before closing may be exempt, and an active-duty Purple Heart recipient may qualify for an exemption if the required evidence is provided on or before closing.
Refunds can come into play in limited situations. The VA says a borrower may be eligible for a refund if a later disability compensation award is retroactive to before the loan closing date, but lenders should not tell borrowers to close first and simply expect a refund later.
How the Fee Changes Based on the Loan
The current VA funding fee chart shows that the percentage can change meaningfully depending on the transaction. For VA-backed purchase and construction loans, first-time use with less than 5% down is 2.15%, later use with less than 5% down is 3.3%, 5% down or more is 1.5%, and 10% down or more is 1.25%.
Cash-out refinance loans work differently. The VA says that the first use is 2.15% and later use is 3.3%, and the fee does not change based on the down payment amount for that loan type.
Some other VA loan types have different funding fee rules altogether. Interest Rate Reduction Refinance Loans, often called IRRRLs, carry a 0.5% fee, while loan assumptions also carry a 0.5% fee, and Native American Direct Loans use a separate schedule.
How It Affects VA Loan Closing Costs
The funding fee is part of the broader picture of VA loan closing costs. The VA lists other closing cost categories that may show up in the transaction, including the appraisal fee, title insurance, recording fees, taxes, discount points, and lender charges such as origination.
Who pays what can vary. The CFPB notes that buyers generally pay the costs associated with the transaction, but contracts, negotiations, and state law can shift some of that burden, and seller credits may change the final cash needed at closing.
The VA also says sellers or builders may offer credits to cover some or all of the buyer’s closing costs. Requirements and availability can vary by state, lender overlays, and borrower profile, so the most useful document to review early is the Loan Estimate, which lays out the expected charges.
Can You Roll the Fee Into the Loan
Borrowers do not always have to bring the funding fee in cash. The VA says you can either pay the full fee at closing or include the funding fee in the loan amount and pay it over time.
That option can help with upfront cash flow, but it changes the math. The CFPB notes that rolling the upfront fee into the mortgage increases both your loan amount and your overall costs.
The rule on what else can be financed is equally important. On a purchase or construction-permanent VA loan, only the funding fee can be financed into the loan amount, while other fees and charges generally must be paid at loan closing.
What Borrowers Should Check Before Closing
One of the smartest moves is confirming exemption status before the closing table. VA guidance from 2023 says lenders should not ignore information suggesting an exemption may apply, and they should not advise borrowers to assume a refund will be available later.
Another useful step is checking how the fee appears on the paperwork. Review the Loan Estimate and later the Closing Disclosure to see whether the funding fee is being financed or paid at closing, then compare that choice against your cash reserves and long-term cost goals.
It also helps to ask how seller credits, lender credits, and other closing costs interact with your plan. A lower cash-to-close number can be helpful, but the cheapest upfront structure is not always the lowest-cost structure over time. That comparison is often easier when it happens before closing week.
A Clearer Path Through the Numbers
If you are comparing VA options and want help making sense of the VA funding fee, Trusted American Mortgage can walk through the tradeoffs with you. We can help you review whether a VA loan funding fee exemption applies, how the fee fits into your closing costs, and what it means to finance it rather than pay it all at once.
For a practical breakdown of your next steps, contact our team or call us at 866-582-6684. We will help you look at the full cost picture, make sense of the paperwork in front of you, and choose the direction that best matches your financial goals.
