MILITARY & VA
What is the VA funding fee and how can I avoid it?
By Steve Lockhart
The short answer
The funding fee is the trade the VA makes for giving you 100 percent financing with no monthly mortgage insurance. Rather than paying a premium every month like PMI, you pay a one-time fee that can be rolled into the loan balance.
Full answer
The funding fee is the trade the VA makes for giving you 100 percent financing with no monthly mortgage insurance. Rather than paying a premium every month like PMI, you pay a one-time fee that can be rolled into the loan balance. Under the current schedule, a first-time user buying with a conventional low down payment pays 2.15 percent of the loan amount; a smaller down payment of at least 5 percent drops it to 1.5 percent, and 10 percent or more drops it to 1.25 percent. A subsequent use with less than 5 percent down runs higher, and the streamline refinance, the IRRRL, carries 0.5 percent.
The best news is that many veterans never pay it. The fee is waived for veterans receiving VA disability compensation, for surviving spouses of veterans who died from a service-connected disability, and for active-duty Purple Heart recipients. That exemption is verified with VA paperwork before closing.
A few things worth knowing: the fee is not an extra cost you must bring to closing, because it can be financed, and the VA schedule updates, so we confirm the current percentage and your exact exemption status with the lender before we build the numbers.
Go a little deeper
Frequently asked
Questions service members often follow up on
Can the funding fee be included in the loan?
Yes, that is standard practice and the VA allows it. Financing the fee raises the balance slightly, so we show you the honest monthly impact before you choose whether to pay it up front or roll it in.
How do I prove I am exempt from the funding fee?
Your lender requests the VA paperwork showing your disability compensation status or qualifying surviving spouse status. It is confirmed before closing, so there are no surprises at the table.
Is the funding fee a closing cost I pay the VA directly?
It is collected through the closing process like other fees, either financed into the loan or paid at closing. The lender coordinates the payment with the VA, so you never write a separate check to the VA.
The Lockhart Method
The Lockhart Method
Your Home | My Strategy | Proven Results
My strategy: know your exemption status before we price anything. We confirm the current fee schedule with the lender, fold the fee into the true payment comparison, and make sure you never pay a fee the VA says you do not owe.
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