The VA funding fee is a one-time loan fee paid to the Department of Veterans Affairs (VA). The VA uses the money received through the VA funding fee to help pay for a variety of veteran-centric programs, including the VA home loan program.
VA loan borrowers have the option to pay the VA funding fee as a one-time payment at closing or choose to roll it into their monthly mortgage payment. Borrowers who are able to pay the VA funding fee upfront typically save money over the life of the loan.
As of January 1, 2020, the VA funding fee rate is 2.30% for first-time VA loan borrowers with no down payment. The funding fee increases to 3.60% for those borrowing a second VA loan. The funding fee rate is only applied to the amount financed in the VA loan, so no fee is applied to a borrower’s down payment.
Borrowers can decrease their funding fee rate by putting at least 5% down on a VA home loan, and about one-third of all borrowers are exempt from paying the funding fee altogether.
Veterans with a disability rating of higher than 10%, Purple Heart recipients, and surviving spouses of veterans who died in the line of duty are exempt from paying the VA funding fee. About one-third of all VA loan borrowers are exempt, so ask a VA loan lender if you qualify for an exemption.